Leggett & Platt, Inc. (LEG): 44 Consecutive Years of Dividend Increases and a 3.1% Yield

As we mentioned, LEG’s business does have some cyclicality to it. During the last recession, LEG’s sales fell by 25% in fiscal year 2009 as consumers put off big ticket discretionary purchases like furniture and mattresses.

Source: Simply Safe Dividends

Despite the cyclicality of LEG’s revenue, the company is a free cash flow machine. Even during the worst of the financial crisis, LEG easily generated enough free cash flow per share to cover its current annual dividend payment ($1.28 per share). As a matter of fact, LEG’s free cash flow has more than covered the company’s dividend payment for over 25 straight years, adding to the dividend’s safety.

Source: Simply Safe Dividends

The company has also generated a decent return on invested capital each year despite the competitiveness of its markets. The company’s scale, vertical integration, and efficient operations have helped it create value for shareholders.

Source: Simply Safe Dividends

Finally, it’s very important to scrutinize the balance sheet for cyclical businesses. No one has a crystal ball, and macro conditions can quickly turn when management least expects it. If a company like LEG found itself with reduced cash flow and heavy debt or interest payments needing to be paid, the dividend could become at risk.

As seen below, LEG’s balance sheet is reasonable. The company has enough cash ($251 million) to cover its dividend payments and interest expense, and its free cash flow generation safely covers both items as well. All of the company’s book debt could also be covered with cash on hand and 1.7 years of earnings before interest and taxes (EBIT).

Source: Simply Safe Dividends

Dividend Growth Score

Our Growth Score answers the question, “How fast is the dividend likely to grow?” It considers many of the same fundamental factors as the Safety Score but places more weight on growth-centric metrics like sales and earnings growth and payout ratios. Scores of 50 are average, 75 or higher is very good, and 25 or lower is considered weak.

LEG’s dividend growth potential is somewhat below average with a Dividend Growth Score of 43. The company has been a very reliable dividend grower with 44 consecutive years of increases, including a 3% raise in August 2015, but this dividend aristocrat has seen its growth decelerate over the last decade.