Last update on 2024-06-27

Leggett & Platt (LEG) - Dividend Analysis (Final Score: 8/8)

Analyze Leggett & Platt (LEG) dividend policy performance and stability based on an 8-criteria scoring system, earning a perfect score of 8/8.

Short Analysis - Dividend Score: 8

We're running Leggett & Platt (LEG) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Dividend Yield Higher than the Industry Average?

Dividend yield represents the dividend income per share received from the company relative to its share price.

Leggett & Platt (LEG) boasts a robust dividend yield of 6.9545% in 2023, significantly higher than the industry average of 1.99%. Historically, LEG's dividend yield performance has been consistently superior to the industry for two decades, peaking at 6.5833% during the 2008 financial crisis. The trend demonstrates their consistent distribution policies despite varying stock prices, thus presenting LEG as an attractive choice for income-focused investors. However, it’s crucial to consider the sustainability of these dividends given fluctuating stock prices and economic conditions.

Average annual Growth Rate higher than 5% in the last 20 years?

The Dividend Growth Rate is an important indicator of a company's financial health and its ability to increase shareholder value over time.

Looking at the Dividend Ratio data from 2003 to 2023 for Leggett & Platt (LEG), the Dividend Growth Rate shows various fluctuations. While the dividend per share ratio has increased significantly in some years (for instance, 28.2051% in 2008), it has also dipped dramatically in others (down to 2% in 2009) or even lower (1.2658% in 2020). Despite some years with impressive growth rates, the average dividend ratio of 6.4871% over this period does suggest that the company has managed to sustain growth above the 5% threshold over 20 years. This trend may be considered moderately favorable, although the significant variability and occasional dramatic drops could be a cause for concern. Consistent dividend growth is preferred as it indicates stable and predictable returns for investors.

Average annual Payout Ratio lower than 65% in the last 20 years?

The average payout ratio represents the fraction of earnings a company pays to its shareholders in the form of dividends. An average ratio lower than 65% is often considered healthy as it suggests that the company is retaining enough earnings to reinvest in the business or to cover any future expenses.

Leggett & Platt’s payout ratio values over the past 20 years show significant volatility, with multiple years crossing well past the 65% threshold. Notable spikes include years with negative payout ratios like 2007 and 2023, and extremely high values in 2008, 2009, 2013, and 2014, which reflect perhaps unusual market or operational challenges—possibly indicating problematic financial standing or exceptional dividends relative to earnings. While individual years fall below the 65% criterion, the average over these fluctuating periods is 2.6709%. Although this average might initially seem acceptable, the vast inconsistencies and occasionally excessive ratios suggest an unstable payout policy, leaning towards a negative interpretation even if the average itself appears unproblematically low.

Dividends Well Covered by Earnings?

Dividends are well covered by the earnings. This criterion examines whether a company generates enough earnings to sustainably pay its dividends. This is typically measured using the dividend payout ratio, calculated as dividends per share divided by earnings per share. A lower ratio suggests that the company is retaining more of its earnings for growth and future payments, indicating better coverage of dividends.

Over the span of 2003-2023, Leggett & Platt's dividend coverage by earnings per share (EPS) shows significant variability. Early years like 2003-2006 show relatively healthy coverage ratios around 40-50%, indicating good balance. However, 2007 represents an anomaly, with a negative EPS drastically skewing the coverage ratio (-13), followed by relatively high payout ratios in 2008-2009 (above 100%), reflecting strain on earnings. The trend improves from 2010-2017, stabilizing under 100% and often within the desirable 40-70% range, suggesting dividends were mostly well-covered. Notably, 2014 was an outlier year where EPS dropped substantially, raising the ratio. Post-2018, while 2019 and 2022 show healthy coverages, 2021's drop in EPS makes coverage tight. Dramatic variability, especially in 2023 with negative earnings, highlights inconsistency and potential risk in dividend sustainability, which is critical for attracting long-term investors looking for predictable income.

Dividends Well Covered by Cash Flow?

Dividends Well Covered by Cash Flow gauges a company's ability to sustain its dividend payments from the cash generated by its operations. A higher ratio indicates a better coverage and financial health.

From 2003 to 2023, LEG's free cash flow has demonstrated variability, peaking at $536.4 million in 2020, but showing significant fluctuations with a notable dip to $164.7 million in 2021. Dividend payout amounts have shown a steady increase from $102.7 million in 2003 to $239.4 million in 2023. The coverage ratio varies significantly year to year, ranging from a low of 0.268 in 2007 to a high of 1.325 in 2021. This inconsistency signals potential risks. While high ratios in certain years demonstrate capacity to cover dividends, fluctuating free cash flows and increasing dividend obligations suggest potential future constraints. Despite a general trend of covering dividends, close monitoring is essential given the ebb and flow in these metrics.

Stable Dividends Since the Company Began Paying Dividends?

Stable dividends over two decades imply that Leggett & Platt effectively manages its resources and finances to provide reliable income to shareholders. It reduces investment risk, indicating strong performance and strategic consistency.

Analyzing LEG's dividend per share, we observe a consistent upward trend from 2003 to 2023, increasing from $0.54 to $1.82. Notably, the dividends have never dropped by over 20% year-on-year, emphasizing the company's commitment to maintaining stability. This stability is crucial for income-seeking investors relying on regular payouts. For example, in 2008, amidst financial setbacks, dividends still rose from $0.78 to $1.00. Such resilience suggests that LEG prioritizes shareholder returns, bolstering investor confidence. Therefore, the trend demonstrates sound fiscal health with a commendable record of increasing dividends, beneficial for income-oriented portfolios.

Dividends Paid for Over 25 Years?

Explain the criterion for Leggett & Platt (LEG) and why it is important to consider

This is calculated over an extended period, demonstrating the company's long-term commitment to returning capital to shareholders, showing resilience and financial health.

Reliable Stock Repurchases Over the Past 20 Years?

An analysis of reliable stock repurchases over the past 20 years focuses on consistency in share buyback strategies. Reducing the number of outstanding shares can increase earnings per share (EPS), potentially enhancing shareholder value.

Leggett & Platt (LEG) has shown a consistent trend of stock repurchases over the past 20 years. Starting from 196 million shares in 2003, the number of shares had decreased to around 136.3 million by 2023. This indicates that the company has repurchased shares regularly, especially during the years like 2005, 2006, and from 2008 to 2019, and again in 2022. On average, the company managed to reduce its share count by -1.77% annually over this period. This is a favorable trend as it suggests a focused strategy on returning capital to shareholders and EPS enhancement. However, minor fluctuations in recent years, such as between 2019 to 2021, should be examined to gauge any emerging dilution trends.