Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Leggett & Platt, Incorporated (NYSE:LEG) is about to go ex-dividend in just 3 days. You will need to purchase shares before the 12th of September to receive the dividend, which will be paid on the 15th of October.
Leggett & Platt's next dividend payment will be US$0.40 per share. Last year, in total, the company distributed US$1.60 to shareholders. Calculating the last year's worth of payments shows that Leggett & Platt has a trailing yield of 4.1% on the current share price of $38.98. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Leggett & Platt has been able to grow its dividends, or if the dividend might be cut.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Leggett & Platt paid out more than half (71%) of its earnings last year, which is a regular payout ratio for most companies. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Dividends consumed 54% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.
It's positive to see that Leggett & Platt's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. For this reason, we're glad to see Leggett & Platt's earnings per share have risen 11% per annum over the last five years. Leggett & Platt is paying out a bit over half its earnings, which suggests the company is striking a balance between reinvesting in growth, and paying dividends. Given the quick rate of earnings per share growth and current level of payout, there may be a chance of further dividend increases in the future.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past 10 years, Leggett & Platt has increased its dividend at approximately 4.8% a year on average. Earnings per share have been growing much quicker than dividends, potentially because Leggett & Platt is keeping back more of its profits to grow the business.
Is Leggett & Platt an attractive dividend stock, or better left on the shelf? It's good to see earnings are growing, since all of the best dividend stocks grow their earnings meaningfully over the long run. However, we'd also note that Leggett & Platt is paying out more than half of its earnings and cash flow as profits, which could limit the dividend growth if earnings growth slows. To summarise, Leggett & Platt looks okay on this analysis, although it doesn't appear a stand-out opportunity.
Wondering what the future holds for Leggett & Platt? See what the five analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
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