Investors in retirement likely desire income from their investment portfolios, to help pay for a variety of life’s expenses, explains, notes Ben Reynolds, editor of Sure Dividend.
Dividend income can be a great supplement for retirees, but not all dividend stocks are worthy of investment. Retirees should take caution when considering high dividend stocks, as many extreme high-yielding stocks have deteriorating fundamentals.
Investors want to avoid dividend cuts at all costs, which is why we recommend stocks with proven dividend growth histories, such as the Dividend Kings. This is a list of stocks that have each raised their dividends for at least 50 consecutive years.
Leggett & Platt (LEG) is a Dividend King with a long history of steady growth, even through economic downturns. With a yield above 4%, LEG is a quality Dividend King for retirees.
Business Overview & Recent Events
Leggett & Platt is a diversified manufacturing company. It designs and manufactures a wide range of products, including bedding components, bedding industry machinery, steel wire, adjustable beds, carpet cushioning, and vehicle seat support systems. The company has a large and diverse product portfolio.
On August 1st, the company reported fiscal second-quarter results. Quarterly revenue of $1.33 billion was in-line with analyst estimates, representing 4.7% year-over-year growth. Organic sales rose 5% for the quarter, while volume was down 6% due to weak demand from residential customers.
Selling price increases added 13% to quarterly sales, while currency was a drag by 2%. In all, LEG’s earnings-per-share declined 14% year-over-year, as the impact of rising inflation took its toll on the bottom line.
The difficult environment is expected to last through the year. Along with quarterly results, LEG lowered its full-year outlook. The company now expects full-year sales growth of 2% to 6%, while earnings-per-share is expected in a range of $2.65 to $2.80 for 2022.
Dividend Safety & Expected Returns
Leggett & Platt has maintained a long history of steady growth, thanks in large part to the company’s durable competitive advantages. The company holds an expansive intellectual property portfolio, consisting of 1,500 issued patents and approximately 1,000 registered trademarks.
These competitive advantages separate Leggett & Platt’s various brands from the competition, and allow the company to remain profitable and pay dividends, even during recessions.
For example, in the most recent quarter LEG increased its dividend by 5%, and the company utilized $35 million to repurchase 1 million shares of its own stock. Leggett & Platt is a shareholder-friendly company that returns cash to investors, even during difficult periods. The dividend also appears secure, as Leggett & Platt has a fiscal 2022 dividend payout ratio of 65%.
We view the stock as slightly undervalued, with a high return potential. At the midpoint of guidance, LEG stock trades for a forward P/E of 15.0, which is exactly in-line with our fair value P/E. Still, we expect 5% annual earnings-per-share growth for the company, while shares currently yield 4.3%. Overall, total returns are expected to reach 9.3% per year over the next five years.
