I have been analyzing dividend companies for nearly a year, constructing a model portfolio of my own that I am presenting to the Motley Fool community, one company at a time. Over the last month, I have had trouble locating companies that I feel are worthy of being included in my portfolio. I have analyzed, and rejected, dozens of stocks.
I review the companies on seven different criteria: yield, number of years paying and raising dividends, 5-year dividend growth rate (DGR), 5-year projected earnings growth rate (EGR), total return for the past twelve months, PE and payout ratio. I feel that this selection covers the past dividend-paying history, the potential future earnings growth, and the valuation of the company.
I constructed a rating system that awards points for each of the previous named criteria. A “perfect” score would be 28 points, with 4 points awarded in all seven categories.
I finally decided to include Leggett & Platt, Inc. (NYSE:LEG), which scored 18 points on my system. It has been hovering in the 16-17 point range for months, and this time it finally gained the extra point necessary to assure inclusion in my portfolio.
Leggett & Platt, Inc. (NYSE:LEG) is a boring but dependable consumer goods company, manufacturing many components for various products, chiefly bedsprings and frames. The company is classified in the Home Furnishings and Fixtures industry.
Dividend Metrics
In terms of its potential as a dividend-generating stock, I look at the current dividend metrics. Leggett & Platt, Inc. (NYSE:LEG)’s yield is 3.6% and it has a 41-year history of consistently paying and raising dividends. The last dividend increase was in September, an increase of 4% over the previous quarter’s distribution.
The company’s 5-year DGR is 5.9%, and its dividend payout ratio is 67%.
Future Earnings Metrics
In terms of future earnings growth, the 5-year EGR as estimated by the six professional analysts who cover the company is 66% higher than that of the S&P 500, at 15.0%. Earnings for 4Q 2012 beat estimates by 10% and were 45% higher than the same quarter a year ago, and forward-looking estimates suggest a 10% increase for FY2013 and 17% for FY2014.
Valuation Metrics
The company has a TTM PE of 19.2 based on a recent price of approximately $32. Leggett & Platt, Inc. (NYSE:LEG) has had a terrific year, with a total twelve-month return of 47.6%. It is currently trading around its 52-week high.
Analyst Opinion
The Motley Fool community rates LEG a five-star CAPS pick, with 220 Bulls and 39 Bears (85% positive sentiment). The six professional analysts who cover the company rank it a 2.3 (1.0 = Strong Buy, 5.0 = Sell) with one Strong Buy, two Buys, and three Holds. They have assigned a one-year average target price of $33.00, which is a potential gain of 3%.
Competition
Leggett & Platt, Inc. (NYSE:LEG)’s competitors are a little less well-known as dividend companies, but I looked at Flexsteel Industries, Inc. (NASDAQ:FLXS), which is currently trading at $24 per share and yields 2.4%. The company has been paying and raising dividends for only two years, the 5-year DGR is 12.1%, and the PE is 12.5. There are no professional analysts who currently cover the company.
The total return over the past twelve months is 47.1%, as the stock has risen from $16 to $23. Its 52-week high is $26.29, which was reached early in March.
I also examined Genuine Parts Company (NYSE:GPC), which has come close to making my list in the past. It is currently trading around $76 per share and yields 2.9%. The company has been paying and raising dividends for 56 years, the 5-year DGR is 6.4%, the EGR is 8.8%, the PE is 18.4 and the payout ratio is 49%. GPC’s total return over the last twelve months is 23.6%.
Genuine Parts is still right there on the cusp of my portfolio; it currently ranks a 16, which means I will keep an eye on it, but it doesn’t make it at this time.
Conclusion
Leggett & Platt, Inc. (NYSE:LEG) has many strengths, including good historical dividend growth, an attractive yield, strong future earnings growth prospects, and terrific growth over the past twelve months. The only metric that I am not thrilled with is the payout ratio at 67%, but it is not so high as to be alarming.
It is now the ninth stock in my Perfect Dividend portfolio. Unfortunately, I just missed its ex-dividend date, which was March 13, so I will have to wait another quarter before I can begin collecting its distributions.
I will begin tracking it based on the closing price on the day that this article is syndicated.
The article Building My Perfect Dividend Portfolio – Leggett & Platt originally appeared on Fool.com and is written by Karin Hernandez.
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