Portfolio Update
The FiveTwenty portfolio received $150.28 in dividends in the past week. BMY, T, and VZ paid their quarterly dividend during the week.
| Past Week Dividend | $150.28 |
| Current Quarter Dividend (Q4 2021) | $425.57 |
| LifeTime Dividend | $1,526.90 |
| Estimated Annual Dividend | $3,334.46 |
The capital allocation for the week of 11/07/2021 to 11/13/2021 will be used to add to our position in Leggett & Platt (NYSE: LEG)
LEG – Position Update
Since our last check-in on LEG in week 37 of 2021, the company reported Q3 2021 earnings on 11/01/2021. Additionally, the share price decreased 5.4% from $46.68 to $44.15 during the same period.
| TTM | Prev. Update | 10-year median | |
| Dividend Streak | 48 years | 48 years | |
| Yield | 3.71% | 3.47% | 3.53% |
| Payout Ratio | 59.21%1 | 56.64%2 | |
| P/E | 15.931 | 16.322 |
1computed using TTM adjusted EPS of $2.77 as of Q3 2021
2computed using TTM adjusted EPS of $2.86 as of Q2 2021
Q3 2021 earnings report
Did LEG’s latest earnings report raise any warning flags?
In Q3 2021, LEG posted an increase in revenue, while at the same time net income and adjusted EPS were lower compared to Q3 2021. The company experienced a decrease of 6% in sales volumes due to supply chain constraints in the Bedding and Automotive segments. This was offset by a 13% increase in sales prices for raw materials. Additionally, EPS for the quarter were also adversely affected by a higher tax rate ($0.05/share) compared to the year ago quarter. Overall, revenues grew 9%, net income dropped 9%, and adjusted EPS were 13% lower compared to Q3 2020.
| Revenue (in millions) | Net Income (in millions) | Adj. EPS . | |
| Q3 2020 | $1,207.6 | $107.0 | $0.82 |
| Q3 2021 | $1,319.2 | $97.2 | $0.71 |
| % Change | 9% | (9)% | (13)% |
Looking ahead, LEG updated its full year 2021 guidance. The company narrowed its expected revenue guidance to $5.0 to $5.1 billion from the previous $4.9 to $5.1 billion, a 17% to 19% increase over 2020. Guidance for adjusted EPS was also updated to a range of $2.70 to $2.80 from the previous guidance of $2.70 to $2.80.
Thesis
Why are we adding LEG to the FiveTwenty portfolio?
LEG’s Q3 2021 earnings were a mixed bag. While the company saw record revenue driven primarily by higher selling prices for raw materials, lower overall volumes resulted in lower than expected net earnings and EPS. However, the lower sales volumes were due to the global supply chain disruptions caused by COVID-19, which we expect to subside as economic activity returns back to normal.
We remain confident in the ability of LEG to produce stable growth going forward, that will allow it to continue to sustain and grow its dividend. Therefore, we are looking at the post earnings dip in the share price as an opportunity to add to our position in the company at an attractive initial yield.
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