The board of Leggett & Platt, Incorporated (NYSE:LEG) has announced that it will pay a dividend on the 15th of July, with investors receiving $0.05 per share. This means the annual payment is 2.1% of the current stock price, which is above the average for the industry.
We've discovered 2 warning signs about Leggett & Platt. View them for free.Leggett & Platt's Long-term Dividend Outlook appears Promising
If the payments aren't sustainable, a high yield for a few years won't matter that much. While Leggett & Platt is not profitable, it is paying out less than 75% of its free cash flow, which means that there is plenty left over for reinvestment into the business. We generally think that cash flow is more important than accounting measures of profit, so we are fairly comfortable with the dividend at this level.
According to analysts, EPS should be several times higher next year. If the dividend continues along recent trends, we estimate the payout ratio will be 2.7%, so there isn't too much pressure on the dividend.
See our latest analysis for Leggett & Platt
Dividend Volatility
Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was $1.24 in 2015, and the most recent fiscal year payment was $0.20. Dividend payments have fallen sharply, down 84% over that time. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.
Dividend Growth Potential Is Shaky
Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. Leggett & Platt's EPS has fallen by approximately 54% per year during the past five years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this becomes a long term trend.
The Dividend Could Prove To Be Unreliable
Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. This company is not in the top tier of income providing stocks.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 2 warning signs for Leggett & Platt (of which 1 is concerning!) you should know about. Is Leggett & Platt not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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