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In a bid to enhance shareholder value, Leggett & Platt Inc. (LEG - Analyst Report) recently increased its quarterly dividend by 3.6% -- a penny -- to 29 cents per share. The company has been consistently increasing its dividend for the past 41 years at a compounded annual growth rate of 13%.

The new dividend will be paid on October 15, 2012 to shareholders of record as of September 14, 2012. The annualized dividend yield, based on the increased dividend and current stock price, is approximately 5%. Previously, on August 2, 2011, Leggett raised its dividend to 28 cents from 27 cents per share.

Dividend increase has emerged as a trend among companies having a stable cash position and healthy cash flow. We believe that Leggett’s assertion of increase in dividend signifies its ability to generate liquidity and its potential to improve in the long run.

Recently, Leggett exited the second quarter of fiscal 2012 with cash and equivalents of $271.2 million, long-term debt of $821 million and shareholders' equity of $1,347 million. Moreover, the strength in the company’s financial base also reflected from its existing commercial paper program and revolver facility balance in excess of $330 million.

Net debt to net capital at quarter end was 33%, a decline from 34% in the previous quarter. The company’s current net debt to net cap ratio remains within its long-term target range of 30% - 40%.

Further, for 2012, the company expects to generate about $350 million in cash from operations, with capital spending and dividends estimated at about $90 million and $160 million, respectively. In addition, the company expects to distribute about 2 million of its common shares in the form of employee benefit and stock purchase plans.

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.

Our Recommendation

Leggett & Platt has a well-diversified customer base and solid research and development capabilities, which provide a competitive edge to the company 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 grab opportunity when the economy revives.

Leggett & Platt currently retains a Zacks #2 Rank, which translates to a short-term Buy rating. However, we remain slightly cautious on the stock and uphold our long-term Neutral recommendation, waiting to see further catalysts before becoming more positive on the stock.

Founded in 1883 and headquartered in Carthage, Missouri, Leggett & Platt is a global manufacturer that conceives, designs and produces a broad variety of engineered components and products for homes, offices, retail stores and automobiles. The company’s most important product line includes components for residential furniture and bedding, retail store fixtures and point of purchase displays, and components for office furniture. The company competes with Steelcase Inc. (SCS - Snapshot Report) and Genuine Parts Company (GPC - Analyst Report).

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