Leggett Enhances Shareholder Value, Boosts Dividend by 3.3%


After flaunting a strong second quarter, despite sales declines at Store Fixtures and Commercial Vehicle Products (:CVP), Leggett & Platt Inc. (LEG) is here again to woo shareholders with a 3.3% increase in dividend. The company has raised its dividend by a penny to 31 cents per share and thus bringing the annual dividend to $1.24. The company has been consistently increasing its dividend for the past 43 years at a compounded annual growth rate of 13%.

The new dividend is payable on Oct 15, 2014 to shareholders of record as of Sep 15, 2014. The annualized dividend yield, based on the increased dividend and last closing stock price, is approximately 3.7%. Previously, on Aug 8, 2013, Leggett raised its quarterly dividend to 30 cents from 29 cents per share.

We believe that Leggett’s hike in dividend shows its ability to generate liquidity and potential to improve in the long run. Last week, Leggett reported second-quarter 2014 financial results with cash and equivalents of $304.2 million, long-term debt of $926.0 million and shareholders' equity of $1,262.4 million. Moreover, the strength in the company’s financial base is reflected in a balance of $340 million under its existing commercial paper program.

Net debt to net capital ratio as of Jun 30, 2014 was 35.6% despite the normal seasonality of its business, impairment charges and the purchase of Tempur Sealy's innerspring plants. This stood near the mid-point of the company's long-term targeted range of 30%—40%.

Further, for 2014, the company expects to generate over $350 million in cash from operations, with capital spending estimated at about $100 million and dividend payouts worth $170 million. Further, Leggett hopes to continue with its share repurchase program, intending to buy back 5—7 million shares and issue nearly 2 million shares under the employee benefit plans in 2014.

Considering the previous track record, the market has been expecting a positive revision in the quarterly dividend rate and the company’s strong performance in the recently concluded quarter further intensified this expectation.

Increasing the dividend has been a common move for companies with a stable cash position and healthy cash flow. Other firms like Republic Services Inc. (RSG), Nabors Industries Ltd. (NBR) and Neenah Paper Inc. (NP), have also raised their quarterly dividends recently by 7.7%, 50% and 12.5%, respectively.

Leggett & Platt, which currently carries a Zacks Rank #3 (Hold) has a well-diversified customer base as well as solid research and development capabilities. These give the company a competitive edge and strengthen its pricing power in the market. With a low fixed-cost base, spare production capacity and healthy operating cash flow generating capability, the company remains well positioned to avail opportunities once the economy revives.

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