In an attempt to enhance shareholder value, Leggett & Platt Inc. (LEG - Analyst Report) recently increased its quarterly dividend by 3.4%, nudging up a penny to 30 cents per share and thus bringing the annual dividend to $1.20. The company has been consistently increasing its dividend for the past 42 years at a compounded annual growth rate of 13%.
The new dividend is payable on Oct 15, 2013 to shareholders of record as of Sep 13, 2013. The annualized dividend yield, based on the increased dividend and last closing stock price, is approximately 3.9%. Previously, on Aug 8, 2012, Leggett raised its quarterly dividend to 29 cents from 28 cents per share.
We believe that Leggett’s hike in dividend shows its ability to generate liquidity and potential to improve in the long run. In late Jul 2013, Leggett reported second-quarter 2013 financial results with cash and equivalents of $280.3 million, long-term debt of $973.9 million and shareholders' equity of $1,433.7 million. Moreover, the strength in the company’s financial base is reflected in a balance of $479.0 million under its existing commercial paper program.
Net debt to net capital at the quarter-end was 33%, down from 34% in the previous quarter. The company’s net debt to net capital ratio as of Jun 30, 2013 was 29.3%, marginally below the company’s long-term targeted range of 30.0%–40.0%.
Further, for 2013, the company expects to generate about $350 million in cash from operations, with capital spending and dividends estimated at about $85 million and $125 million, respectively. Further, Leggett expects to continue with its share repurchase program, having a standing authorization to repurchase up to 10 million shares every year.
Considering the previous track record, the market has been expecting a positive revision in the quarterly dividend rate and this expectation increased further with the company’s strong performance in the recently concluded quarter.
Increasing the dividend has been a common move for companies having a stable cash position and healthy cash flow. Notably, a number of other firms have raised their quarterly dividend payouts in the past one month. Such companies include Union Pacific Corp. (UNP - Analyst Report), Education Realty Trust Inc. (EDR - Snapshot Report) and Arch Coal Inc. (ACI - Analyst Report). Education Realty and Arch Coal both raised their quarterly dividends by 10% while Union Pacific increased its payout by 14.5%.
Leggett & Platt, which currently carries a Zacks Rank #3 (Hold) has a well-diversified customer base as well as solid research and development capabilities. These give the company a competitive edge and strengthen its pricing power in the market. With a low fixed-cost base, spare production capacity and healthy operating cash flow generating capability, the company remains well positioned to avail opportunities once the economy revives.