Family Dollar Stores, Inc. (FDO), Leggett & Platt, Inc. (LEG): Danger Ahead With These Dividend Aristocrats!!

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Family Dollar logoIt seems like everyone is screeching after yield buying up consumer staples, REITS, and even student loan backed securities. Dividend Aristocrats, those companies that have steadily raised their dividend for 25 years or more, have been go-to stocks for those yearning for yield. But…not every aristocrat is created equal.

Three names that require caution are Family Dollar Stores, Inc. (NYSE:FDO)Leggett & Platt, Inc. (NYSE:LEG), and McCormick & Company, Incorporated (NYSE:MKC). Investors need to consider would they want to be in these names if there weren’t any yield.

Caution ahead

A name I wrote a SWOT analysis on in the past was Leggett & Platt, Inc. (NYSE:LEG), which operates as a diversified manufacturer of furniture and mattress innards, springs and such, as well as making automotive and aerospace seating and components and retail furnishings, shelves, display units. As a double play on both a housing and auto industry resurgence the market has taken it up 35.23% in the last year. The shares hit a 52 week high on March 4 and trade at an 18.21 P/E. Of more concern is the yield at 3.80% at a 67% payout ratio.

The main reasons to worry about Leggett & Platt, Inc. (NYSE:LEG) going forward are twofold. One of their biggest clients has been J.C. Penney Company, Inc. (NYSE: JCP) as they buy Leggett & Platt, Inc. (NYSE:LEG)’s products to refurbish their stores. With a client like J.C. Penney, although it just renegotiated some lines of credit, there is risk their turnaround strategy will get overturned and Leggett & Platt will be holding the bag with future orders canceled.

J.C. Penney’s orders were responsible for buoying Leggett & Platt’s Commercial division sales numbers from being what would have been flat to below average sales. The stores do indeed look much better and brighter thanks to Leggett & Platt, Inc. (NYSE:LEG), but with J.C. Penney stock hitting new 52 week lows almost daily the desperation of JCP management to do something to improve their outlook is a red flag.

The second concern is that the mattress stocks have been whipsawed lately with no consensus whether people are willing to make a fairly pricey purchase especially if their current bedding is less than 10 years old. They don’t call mattresses consumer durables for nothing…they’re supposed to last.

Other things that worry me are the short interest at 7.20% which seems high for a Dividend Aristocrat and the level of debt which also bothers Fool Dan Caplinger. He also mentions the company’s dividend growth is less than 10% and their revenue growth at 2.3% is not encouraging. Finally, the company has two competitors that are threats: bigger Genuine Cast Parts and nimbler Flexsteel Industries, Inc. (NASDAQ: FLXS) are both giving Leggett & Platt, Inc. (NYSE:LEG) a run for the money.

Don’t go through a red light

One company that could do with some Leggett & Platt refurbishing is Family Dollar. The stores are tired-looking and the stock is exhausted, down more than 20% from its June 24 high of $74.73. This stock is only up 6.35% over the last year after the dollar store stocks had a great run the early part of last year.

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