Portfolio Update
The FiveTwenty portfolio received $58.97 in dividends in the past week. ADM, JNJ, and WBA paid their quarterly dividend during the week.
| Past Week Dividend | $58.97 |
| Current Quarter Dividend (Q3 2021) | $449.71 |
| LifeTime Dividend | $955.05 |
| Estimated Annual Dividend | $2,692.99 |
The capital allocation for the week of 09/12/2021 to 09/18/2021 will be used to establish a position in Leggett & Platt (NYSE: LEG)
LEG – Company Profile
Legget & Plat (LEG) is an engineered products manufacturer. The company operates through three segments: Bedding Products; Specialized Products; and Furniture, Flooring & Textile Products. The company, founded in 1883, is comprised of 15 business units, 20,000 employees, and 135 manufacturing facilities located in 17 countries. Official Site | Wikipedia
| Dividend Streak | 48 years |
| Yield | 3.47% |
| Payout Ratio | 56.64%1 (GAAP 54.18) |
| P/E | 16.321 (GAAP 15.61) |
1 on TTM adjusted EPS of $2.86 as of Q2 2021
Financials
Does LEG have the financial means to sustain and raise its dividend going forward?
Over the last decade, LEG grew its revenue from $3.616 billion in 2011 to $4.753 billion in 2019 before taking a step back with revenues of $4.28 billion in 2020. Net earnings also increased from $153 million in 2011 to $334 million in 2019 and then decreasing to $248 million in 2020. However, the strong results so far in the first 6 months of 2021 seem to point at 2020 being a one year COVID-19 related setback.
In the last 10 years, EPS (GAAP and adjusted) showed similar patterns to net income. However, adjusted EPS showed more consistent growth. Adjusted EPS grew from $1.70 per share in 2012 to $2.57 per share in 2019 before declining to $2.13 in 2020. However, similar to revenues and net earnings EPS for LEG have rebounded nicely in the first 6 months of 2021 and are on pace for meaning full growth over both 2020 and 2019 full year numbers.
The average dividend per share growth rate was 4.50% per year in the past 10 years and 4.10% per year in the past 3 years. (per GuruFocus) By not increasing its dividend payouts too aggressively, LEG has managed to decrease its payout ration from the high 60% even 70%+ at the beginning of the decade to 50% and low 60% in more recent years. 2020 stands as an outlier in recent years caused by the negative effects of the COVID-19 pandemic on the company’s sales and earnings.
LEG in 2021 and beyond
LEG’s financial performance has recovered quite nicely during the first 2 quarters of 2021. Both revenues and net earnings rebounded significantly from the COVID-19 pandemic effects. Furthermore, the $2.420 billion in revenue and $199.7 million in net earnings for the first 6 months of 2021 are higher than the $2.368 billion in revenue and $147.4 million in net earnings LEG reported for the first 6 months of 2019.
In addition following strong Q2 2021 results, management increased its full fear guidance for revenue to $4.9 – $5.1 billion from prior guidance of $4.8 – $5.0 billion. Full year EPS guidance also increased to $2.85 – $3.06 from prior guidance of $2.55 – $2.75. If the guidance is met this would represent significant growth over both 2020 and 2019.
Valuation
Are we paying too much for LEG at the current share price?
In the last 10 years, LEG’s P/E ratio saw a low of 9.67 and a high of 72.69, with a median value of 20.03. (per GuruFocus) The current TTM P/E ratio of 16.63 on adjusted EPS and 15.61 on GAAP EPS is lower than the media. However, the current P/E is quite close to where LEG has traded for the majority of the time.
The current share price of $46.68 is 4.1% below the 50-day moving average and 2.1% below the 200-day moving average. Additionally, the share price is near the 40th percentile of the 52 week trading range.
The share price has retreated from the highs seen at the beginning of the summer and is now trading in line with historical valuation.
Yield
How does the current dividend yield for LEG compare to historical values?
In the last 10 years, the dividend yield for LEG has been in a range of 2.43% to 7.04%, with a median of 3.54 %. (per GuruFocus) The current TTM yield of 3.47% is right around the historical median. The current MRD yield of 3.60% is slightly above the median.
Given the current yield of 3.47% is quite a bit above of our target stating yield of 2.5%, we are content to establish an opening position in the company at a yield that matches its historical median.
Thesis
Why are we adding LEG to the FiveTwenty portfolio?
LEG has a 48 year history of increasing its dividend payout. The company also demonstrated it’s commitment to maintaining its dividend payout, when it did not cut the dividend following the 2008 – 2009 great depression even though the payout ratio was above 100% until 2011. Since then LEG has managed to keep increasing its dividend while at the same time lowering the payout ration by growing its net earning and revenues.
We are confident that LEG will remain a stable source of growing dividend income going forward.
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