The Dividend Kings are a group of 46 stocks that have each raised their dividends for at least 50 consecutive years, explains Bob Ciura, editor of Sure Dividend; here, he continues a review of his favorite investments among the Kings.

We recommend income investors consider high-quality dividend stocks that have a demonstrated ability to raise their dividends, even during recessions

Read The Top Dividend Kings, Part 1 — Tennant Company here…

Leggett & Platt (LEG) is a Dividend King with a long history of dividend growth. With a yield above 5% and expected annual returns above 14%, LEG is one of our top-ranked Dividend King.

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. Full year 2022 sales guidance was lowered to $5.1–$5.2 billion, while full year 2022 EPS guidance was reduced to $2.30–$2.45.

Valuation & 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 74%.

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 13.5, which is below our fair value P/E of 15. Therefore, expansion of the P/E multiple will generate positive returns for shareholders moving forward.

Plus, we expect 5% annual earnings-per-share growth for the company, while shares currently yield 5.3%. Overall, total returns are expected to reach 14.3% per year over the next five years.

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