A detailed quantitative analysis by Leggett & Platt, Inc. (LEG) is linked here. Below are some highlights from the analysis linked above:
Company description: Leggett & Platt Inc. manufactures a wide variety of bed and furniture components, as well as other home furnishings, office and commercial furniture, and products for the non-home market.
Fair value: When calculating the fair value, I take into account the differential fair value of the present value MMA along with these four fair value calculations. A detailed description can be found on page 2 of the linked PDF:
1. Avg. High yield price
2. 20-year DCF award
3. Avg. P / E price
4. Graham Number
LEG trades at a discount of just 3.) above. If the NPV MMA differential is also taken into account, the stock is trading at a premium of 11.6% on the calculated fair value of USD 39.15. LEG does not deserve any stars in this area.
Dividend analytical data: There are three possible stars and three key metrics in this section. A detailed description can be found on page 2 of the linked PDF:
1. Free cash flow payout
2. Debt to total capital
3. Key Metrics
4. Dividend Growth Rate
5th years Div. growth
6. Rolling 4 year old Div. > 15%
LEG has earned two stars for 1.) and 3.) above in this section. A star was earned because the free cash flow payout ratio was less than 60% and there were no negative free cash flows in the last 10 years. LEG received a star for an acceptable score in at least two of the four key metrics measured. The company has paid a cash dividend to shareholders every year since 1939 and has increased its dividend payments for 48 consecutive years.
Dividend Income vs. MMA: Why would you take the equity risk and invest in a dividend stock when you could get a better return on a much less risky money market account (MMA) or a government bond? This section compares that stock’s earning power to a High performance MMA. There are two points covered in this section. A detailed description can be found on page 2 of the linked PDF:
1. NPV MMA Diff.
2. years to> MMA
The NPV MMA Diff. of the $ 374 is below the $ 500 target I’m looking for for a stock that has increased dividends as long as LEG has done so. The stock’s current yield of 3.66% exceeds the estimated average MMA rate of 2.74% for 20 years.
Peers: The company’s peer group includes: Hooker Furniture Corp. (HOFT) with a yield of 2.2%, Flexsteel Industries Inc. (FLXS) with a yield of 1.2% and Ethan Allen Interiors Inc. (ETH) with a yield of 4.2%.
Conclusion: LEG did not deserve any stars in the Fair Value category, earned two stars in the Dividend Analytical Data category, and did not deserve two stars in the Dividend Income vs. MMA category. This means that LEG is quantitatively classified as 2 star weak Camp.
With my D4L-PreScreen.xls Model, I decided that the stock price would have to fall to $ 39.89 before LEG’s NPV MMA differential rose to the minimum of $ 500 that I’m looking for on a stock with 48 years of consecutive dividend increases. At that price, the stock would generate a 4.0% return.
Resetting the D4L-PreScreen.xls The dividend growth rate model and solution required to generate the target MMA differential of $ 500 NPV. The calculated rate is 2.3%. This dividend growth rate is higher than the 1.3% used in this analysis, so there is no margin of safety. LEG has one Risk assessment from 1.5, which it classifies as a low risk stock.
Although LEG is a very cyclical company, it has a long history of profitability and generates strong free cash flow. LEG’s effective cost management will help the company to further increase its operating cash flow. LEG’s free cash flow payout of 40% (vs.69%) is below my maximum, and debt to total capital of 62% (vs.51%) is above my maximum. The stock is currently trading above my calculated fair value of $ 39.15. I will continue to value the stock and add to my position if the valuation and my allocation allow.
Disclaimer: The material presented here is for informational purposes only. The above quantitative stock analysis, including the star rating, is mechanically calculated and based on historical information. The analysis assumes that the share will develop in the future as it has in the past. In general, this is never true. Before buying or selling stocks they should do your own research and arrive at your own conclusion. Please see my disclaimer for more information.
Full disclosure: At the time of this writing, I was long in LEG (1.4% of my dividend growth portfolio). Show a list of all my dividend growth portfolio holdings Here.
On the subject of matching items:
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