Our journey to find an undervalued dividend stock never ends! The goal is to reach financial freedom by buying undervalued dividend growth stocks to build a growing, truly passive, dividend income stream. The stock market continues to swing wildly, as we learn more about the impact of the Omicron variant and inflation. The swings have provided us with buying opportunities in great dividend growth stocks. That is why in this article, we are going to review Leggett & Platt to determine if it is time to buy this undervalued Dividend King!

About Leggett & Platt

Leggett & Platt has been around around for a long, long time. The company opened its doors 138 years ago. Since then, the company has grown into a multi-national powerhouse that is a major player in the home furnishings sector. Per the company’s investor relations page, Leggett & Platt is “the leading U.S.-based manufacturer of: a) bedding components; b) automotive seat support and lumbar systems; c) specialty bedding foams and private label finished mattresses; d) components for home furniture and work furniture; e) flooring underlayment; f) adjustable beds; and g) bedding industry machinery.”

What I like is that the company dominates a sector that is needed in every household. People always need bedding. Mattresses aren’t going away anytime soon, along with the bed frames that hold the mattresses. Flooring, automtive components, and other sectors that Leggeett & Platt are dominating aren’t disappearing anytime soon. As long term investors, companies like these are the ones you want to buy.

Why are we Discussing LeGGETT & Platt Today?

This one is simple. Leggett & Platt’s stock price continues to stumble in December 2021. Over the last month, the company’s stock price is down 11% while the company is down 12% year to date. Looking at the stock price chart below, it is obvious that most of the company’s stock price drop has been in the final month of the year.

The company’s stock price slide started in November 2021. The stock market did not respond well to the company’s earnings results. Despite a slight increase in top line revenue that exceeded expectations, the company’s earnings per share fell short of analyst estimates. Further, despite a revenue increase, the company’s sales volume decreased due to supply chain issues.

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Future guidance was also impacted by increased costs and supply chain restraints. This was the other major storyline from earnings causing the stock price to decline. The company tightened its slaes and earnings guidance ranges. Sales guidance is now $5.0b – $5.1b, from $4.9b to $5.1b, while Adjusted EPS guidance is now $2.70 per share – $2.80 per share, from $2.70 to $2.90.  Not major changes by any stretch, but enough to show the impact increased costs are having on the overall business.

This sliding stock price cannot continue to be ignored, especially since the changes in guidance were not material. Therefore, it was imperative that we run the company through our stock screener to see if Leggett & Platt is a stock to buy.

Dividend Diplomats Dividend Stock Screener

Let’s start diving into the numbers.  It is time to evaluate if Leggett & Platt is an undervalued dividend stock. How are we going to do that? You guessed it….we will run the company through the Dividend Diplomats Dividend Stock Screener. We use 3 SIMPLE metrics to evaluate every dividend stock. The goal of our stock screener is to identify if a stock is an undervalued dividend growth stock to buy.

Watch: Our Simple, 3 Step Stock Screener

Here is a rundown of the 3 metrics of our stock screener:

1.) Price to Earnings Ratio Less than the S&P 500. Currently, the S&P 500 is trading at a P/E Ratio of 28.77X. Last year, the S&P 500 was trading at a multiple of 35x – 40x, which is insanely high! Historically, on the other hand, forward earnings are between 20X and 25X.

2.) Dividend Payout Ratio Less than 60% (Although we think a perfect payout ratio is 40% – 60%). The payout ratio measures the safety of the dividend. This ensures the company can continue growing its dividend during good times and bad. That’s why it is a critical metric in our stock screener that we must evaluate!

Read: Dividend Aristocrats with a PERFECT Dividend Payout Ratio

3.) History of Increasing Dividends. We review this metric by reviewing the company’s five-year average dividend growth rate and consecutive annual dividend increases. Since we are long term investors, it is important that a company increases its dividend consistently!

Bonus: Dividend Yield. We like to also throw in a bonus metric to our dividend stock analysis. Yield does not drive our decision; however, we would be lying if we said we completely ignore dividend yield.

How Does Leggett & Platt Perform in Our Stock Screener?

For this analysis, we will use Leggett & Platt’s stock price $38.00 (December 20, 2021 close). Analysts are projecting forward EPS of $3.03 per share. The company’s annual dividend is $1.68 per share. Now that we have the inputs for our analysis, let’s dive into the results.

1.) Price to Earnings Ratio: 12.54x. The stock is trading at less than half the valuation of the S&P 500. Clearly showing signs of undervaluation based on this metric.

2.) Dividend Payout Ratio: 55.4%. Perfect. Nothing more to say. Leggett & Plat’s dividend payout ratio is in between the 40% – 60% range that we covet. 

3.) History of Increasing Dividends: Leggett & Platt’s five year average dividend growth rate is 4.39%. Further, the company is a Dividend King! With their recent dividend increase announcement in May, the company finally announced its 50th consecutive dividend increase.

Read: Who & What is a Dividend King?

Dividend growth has definitely slowed over the last few years.  The company did not increase its dividend during 2020 due to the pandemic. Luckily, the company kept its dividend increase streak alive due to the fact the company’s 2020 dividend paid was greater than the company’s 2019 dividend paid. Still, it was nice to see LEG return to form by increasing its dividend in 2021.

4.) Dividend Yield: 4.4%. The company’s dividend yield is VERY strong compared to the market.

Conclusion

Truth be told, Leggett & Platt is looking very interesting right now. The company performs well in our dividend stock screener. Their P/E Ratio is below the S&P 500 and the company has a perfect dividend payout ratio. LEG is a dividend king and has demonstrated their ability to increase the dividend during good times and bad. One downside is that I wish the company’s dividend growth rate was a little stronger.

The sliding stock price is presenting a very intriguing buying opportunity. With a dividend yield approaching 4.5%, it will be hard to ignore the dividend king. I have a large position in LEG today, as demonstrated in my dividend stock portfolio, so I won’t be throwing a ton of money at Leggett & Platt. With that being said, this may be a great time to add between 10 to 20 shares to my position.

What do you think of Leggett & Platt at the company’s current stock price? Are you buying, selling, or simply holding? What other stocks are on your radar?

Bert