2018 has been a fun investing year, as the market has presented many great buying opportunities and I’ve been fortunate enough to have some extra capital on to capitalize. At the beginning of May, I initiated a large position in Pepsi. Selfishly, I was trying to sneak in one more stock purchase before the end of the month and was fortunate enough to have cash on hard, ready to delpoy. I have been hot on the trail of a Dividend Aristocrat for the last few weeks. Finally, after weeks of waiting, the company’s stock price fell and triggered my limit order. Here is why I initiated a position in Leggett & Platt, Inc. (LEG) at the end of May!
the company – Leggett & Platt (LEG)
Leggett & Platt, Incoporated (LEG) was founded in 1883. The company’s humble beginnings involved the design and manufacturing of beds. In 2018, the company has expanded past their bedding roots and now is the leading US manufacturer of bedding components, automotive seat support and lumbar systems, home furniture and work furniture components, flooring underlayment, high-carbon drawn steel wire, and bedding industry machinery (source: LEG Investor Fact Sheet May 2018).
I actually do not have a lot of manufacturing companies in my portfolio. What attracted me to LEG over other companies is the segment diversification and the company’s strength within each of these segments. Having exposure in residential, industrial, and the automotive segments should allow the company to continue to perform well when one of the sectors has a pullback.
The company popped on my radar after a couple of events. When I was preparing the May edition of my monthly “Expected Dividend Increase” series, I noticed that Leggett & Platt was expected to increase their dividend during the month. I hadn’t performed much research over LEG, but I noticed the company was yielding over 3% and was a Dividend Aristocrat. But honestly, I didn’t think too much of it at the time.
Then, one day a few weeks later, Lanny and I were having one of our infamous water cooler conversations that started as follows: “What stocks are on your radar?” Lanny always has an answer to this question, and he mentioned that he wanted to look more into Leggett & Platt because the company was a Dividend Aristocrat and was down over 10% year-to-date at the time. I left that conversation with a full glass of water and very excited. That night, I performed my own research. The rest was history.
Dividend Diplomats’ Stock Metrics – Leggett & Platt
After my conversation with Lanny, I did what we always do before each investment decision. Run LEG through our infamous stock screener to determine if the company was considered an undervalued dividend growth stock. Here are the results of the screener.
- Price-to-Earnings Ratio (P/E Ratio) – Assuming forward EPS of $2.66/share, the company’s P/E ratio was ~15.50X at the time of purchase. This is well below the broader market. Boom, passes this metric.
- Dividend Yield – With an annual dividend of $1.52/share, LEG’s dividend yield at the time of purchase was 3.68%. This was great to see and was above my portfolio’s overall yield of 2.96%. Obviously I was excited to increase my portfolio’s dividend yield.
- Dividend Growth/History. The company is a Dividend Aristocrat, so they instantly check-off this metric. But the fact the company has increased their dividend for 47 consecutive years is insane. The company’s 47th consecutive increase was announced in May. Management increased their quarterly dividend from $.36/share to $.38/share, a 5.6% increase. It was actually funny and a strange coincidence. The dividend increase was actually announced the same day as our water cooler conversation. However, neither of us had a clue at the time that the increase was announced.
- Dividend Payout Ratio – After the company’s dividend increase, their dividend payout ratio was 57%. once again, LEG passes our screener as this is below our 60% target payout ratio.
- 5-year Average Dividend Growth Rate – The company’s yield is well above 3%, so I am not expecting LEG to have a high dividend growth rate. The company’s 4/61% 5-year dividend growth rate was good, but not great. However, with all the other positives, this was not going to deter me from making the purchase.
- Dividend Payment Date – Personally, I was excited about one fact that is not a part of our screener. But in my quest to improve cash flow in the first and second month of a quarter (since so many companies pay a dividend in the third month), I was excited to see that LEG pays their dividend in the first month of the quarter!
The Purchase & Summary
Clearly, LEG passed our stock stock screener and I was ready to purchase shares. The company’s stock price was trading at ~$42/share at the time of the decision (middle of May). The company’s ex-dividend date was not until June 14, 2018, so I had some time before I had to make a purchase to capture the July dividend. My target price was $41.57/share because this would allow me to purchase the next additional share with the capital I have available.
This is where I did something a little uncharacteristic. Typically, I would have purchased shares at the time and called it a day. But I borrowed a little bit of Lanny’s Italian stubbornness and set a limit order for 67 shares at $41.25/share. Finally, after many days of waiting, a few close calls, and now, a few extra gray hairs, my order filled on May 29, 2018.
In total, I purchased 67 shares of Leggett & Platt. This purchase added $101.84 in forward dividend income to my total forward dividend income. All in all, it was worth the wait and I couldn’t be happier with my investment decision. Now, I can’t wait to receive that first dividend check in July!
What do you think of my purchase? Are you adding shares of Leggett & Platt as well? Is the company on your dividend stock watch list? If not, why? I can’t wait to read your comments!