Showing posts with label LEG. Show all posts
Showing posts with label LEG. Show all posts

Wednesday, December 4, 2019

Adding to LEG and selling calls

As I monitor call activity, I look for stocks that I already own.  Stocks that pay a good and increasing dividend.  Stocks that have a good history of EPS and Revenue growth.

Leggett and Platt, symbol LEG, is one of those stocks.  Let's first look at the recent fundamentals.


Source:  Nasdaq.com
























You can see clear evidence of revenue growth, EPS (earnings per share) growth, and dividend growth.   And in the next table you will see call option potential.



















I have a significant position in LEG but I added today and am selling calls against that new position.  I picked a strike price that nudges up to the 52 week high of just over $55.00.   If they take it, I still have my original position.  If they don't take it, I get to pocket both the dividend and the call premium.

That is my strategy to retire with income that grows; and I am sticking with it.

M* MoneyMadam
Disclosure:  Long LEG with calls on part of the position
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Tuesday, August 6, 2019

LEG for yield

I still like LEG.

https://seekingalpha.com/news/3487621-leggett-and-platt-declares-0_40-dividend#email_link

M* MoneyMadam
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Thursday, April 18, 2019

Leggett and Platt a Dividend Machine for 2019

How often does one stock go down or up based on news from a stock in the same industry.  Sleep number stock is under pressure (you can read the article here https://seekingalpha.com/news/3451714-sleep-number-shares-sink-q1-sales-margin-disappoint?app=1#email_link   I was hoping Leggett and Platt would go down in sympathy.  Here is why.


  • LEG meets all Dividend Machine Fundamentals
  • Dividend yield is greater than 2 year U.S. Treasury
  • Dividend growth beats inflation
  • History suggests the dividend is safe in difficult times
  • Valuation is acceptable


Leggett and Platt is a very diversified company that supplies among many other items, bedding.  I was hoping Leggett and Platt, symbol LEG, might have a similar down turn as Sleep Number, symbol SNBR, down $7 or 15% as of this writing.  But LEG is holding up.

I like Leggett and Platt, symbol LEG; three portfolios hold LEG, 2011, 2013 and 2014.  Click on the year to read the original post.  It's not an exciting stock.  Not a stock with a lot of call option excitement.   But as you can see with the history in this blog that it is a steady source of income for we income investors.  If I were constructing another income portfolio, I would add LEG to it.


FUNDAMENTALS




LEG meets most of the hurdles I use to pick an income stock.  It pays a dividend that is much bigger than I can get from a 2 year U.S. Treasury.   To take the risk embedded in any stock, you have to beat the safest investment such as a U.S. Treasury note or bond.  LEG has earnings that far exceed the dividend paid out making that dividend more safe.  Dividend increases, and D/E (debt to equity ratio) are all within the range I look for (http://www.themoneymadam.com/p/dividend-stock-criteria.html.)


DIVIDEND MACHINE

To be a "Dividend Machine" a stock has to have a history of increasing the dividend over time.  LEG fits that bill.   Inflation, not the CPI number or the one used by the "Fed" but the inflation I measure, is about 3.8%.  I would like to see my income go up by 3.8%.  I can stomach ups and downs in the value of the investment if it is basically safe and continues to raise my pay.   You can see in the table under FUNDAMENTALS,  the last three year dividend increases have averaged over 6%.  Take a look at the longer term dividend history and you can see even during the very difficult period of 2008/2009, LEG delivered safe and increasing income.

Dividend Chart
From Leggett and Platt Website

















 VALUE INVESTMENT

Leggett and Platt Historical P/E Ratio from Macro Trends.net

LEG is trading well above my basis of $28 and change.  Today LEG is trading at $43.35.  Is that too expensive?  Looking at the historical P/E of LEG, I think it is not too expensive.  LEG's current P/E (price earnings ratio) is right around 19 while not cheap this is a very reasonable valuation particularly when you look at the P/E history

While, the vast diversification of this company may be a good thing or a bad thing, I can only go on past performance and the data available. One of part of LEG management I like is the stated goal of increasing total share holder value through, growth as well as returning money to shareholders through dividends and stock buybacks.  For an income investor, those are very nice goals.

April options expire today and I will have some money to invest.  I am going to add LEG and hope the bed bugs don't bite.

M* MoneyMadam


Disclosure:  Long LEG







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Sunday, November 26, 2017

Watsco wins Dividend Machine over 5 others

I need to finish investing the funds dedicated to my 2017 portfolio.  I have another $35,000 to invest and I really don't like buying in this market when everything seems expensive. Since the market seems expensive maybe oversold stocks are where I should look.

I screened about 400 stocks that were considered oversold using R.S.I. (relative strength indicator) of 28 - 30 and who deliver a dividend yield of 2.5% or more.   It was a waste of time. I found out there was a reason why every one of those stocks was in an oversold situation.  Most often they failed on balance sheet issues such as D/E ratio or revenue growth.

What I am looking for to finish my 2017 portfolio

  • More than 5% annual dividend growth over past 3 years
  • Home building materials, services or derivatives
  • Well managed balance sheet as measured by D/E ratio (debt to equity ratio)
  • Revenue growth that supports future dividend increases.

Since that screen didn't expose a great pick, I went back to the same screens I have used since I started writing this blog.   Beginning with yield, and making sure earnings are greater than yield.  I want revenue growth, dividend growth and a decent D/E ratio.

DIVIDEND GROWTH



Dividend growth is very important to me and that is because my expenses go up all the time.  I measure these things and I know it is the case no matter what the official measure of inflation suggests.

So I started my new screen with dividend growth in mind.   I don't want anymore retail, or health care.  We have a chip maker in the portfolio and a fast dining option.  (See the portfolio holdings below.)  Energy seems so overpriced and few banks pay enough in dividends to warrant inclusion.



Right off the bat I found WSO as an example of a stock in the industry I like with great dividend growth.  WSO is where I started.




SIX STOCKS FOR COMPARISON


While, dividend growth is the goal, I also know diversification is important.  Just look at my 2014 portfolio and you will see too much emphasis on energy.  Link to 2014 PortfolioSince 2017 is a small portfolio, I looked for stocks selling goods and services for the home.

I looked at Leggett and Platt (symbol LEG) because they make stuff for the home like faucets.  Watsco symbol WSO is in a similar space but they make HVAC equipment and supplies.   Home Depot (symbol HD)  and Lowes (symbol LOW) are another couple of stocks with products for the home.   Then I added in UPS (symbol UPS) and FedEx (symbol FDX)  because the ecommerce growth at both HD and LOW is significant and someone has to shipped that stuff.  These are the six stocks I analyzed for my next Dividend Machine pick.


I am always surprised when I do these comparative analyses.   I have been really excited about Home Depot but when I saw that their debt has exploded to a D/E ratio of over 10, I have to really consider unloading my position and moving into something else.

It won't be hard to beat HD's 2.07% yield but finding a stock with annual dividend growth of 30% will be hard to find.  Certainly Lowe's comes close.  Lowe's balance sheet is better than home depot but still at 2.89 it is a bit high.   I looked at one other big box stock, Big Lots and their D/E ratio is under .40.   Costco's D/E is .62.  Clearly both HD and LOW have more debt then their industry standard.  LOW's dividend growth rate of 26% is very enticing but their meager yield of 1.87% in view of the other criteria leaves me wanting

The UPS and FDX comparisons are interesting.  UPS has the better yield at 2.89% and acceptable dividend growth of 8%.  But, and it is a big but, their debt to equity ratio is more than 12.  This balance sheet is unacceptable to a conservative income investor.   FDX has much better control of its balance sheet with a D/E ratio of .91 and dividend growth of a mighty 50%.  The hair on this stock is the low yield of .78%.



When I see stocks with low yields, but good balance sheets and good yield growth, and good revenue growth I reserve them for my covered call category of income investing even though I cannot include them in a Dividend Machine Portfolio.  Since FDX meets these criteria, I looked for call options but found none to my liking.

This leaves me with Leggett and Platt (LEG) and Watsco (WSO.)  Purely on dividend growth, the first choice is WSO  with annual dividend increases averaging 36%.  Only HD in this list beats that kind of dividend growth. 

LEG as a contender


LEG has the highest yield but the lowest dividend growth of 5%.   With a 5% annual average increase, I can meet the expenses increases I am living through right now so it is respectable.

LEG has a D/E ratio just above 1.  This is not horrible like UPS or HD but it is higher than WSO's very low D/E ratio of .27.  Let's look more carefully at WSO. 

WSO Dividend Machine Fundamentals


Watsco has been of interest to me, the MoneyMadam, for quite a while; WSO is in each of these portfolios 2011, 2012, and 2016.   In 2012 when tax changes were on the horizon and dividends might be taxed at a higher rate, WSO pay five years of dividends early.   As an income investor, they have your back.

I always like to see revenue growth in a dividend growth stock.  For instance CSCO is very intriguing but their revenues are stagnant.  WSO has decent revenue growth.  It is no Nvidia (NVDA); WSO is not that kind of growth stock.  But income investors need to know the top of the funnel is being fed as well cash the end result - dividends.



Watsco is quite a cash machine and they continue to reward their investors by starting up the dividend increases again.  Take a peek at the table below to view the data I use to evaluate WSO.



What stands out to me is the P/E ratio which at 30.2 is a bit high.  Indeed Watsco is close to it's 52 week high.  Not exactly a bargain.  However, I need to invest some money for income and waiting has not been good to me.

WSO is going into the 2017 portfolio.  When the trade executes, I will post the data on the 2017 Portfolio Page.  WSO is a touch short on yield at 2.68% and touch high in price but I am not going to hope for a price pull back so I can say I bought WSO with a 2.75% yield.  The 2.68% yield is good enough when I look at the other fundamentals.

I may have paper losses if WSO corrects but I can live with that as long as my income continues.  Moreover, I can always buy more.

M* MoneyMadam

Disclosure:  Long WSO, LEG, HD

UPDATE:  Trade executed on Monday, 11/27/2017 @ $164.40.



 http://www.themoneymadam.com/2011/01/dividend-machine-wso-7-of-52.html

http://www.themoneymadam.com/2011/06/wso-covered-call-for-more-income.html

http://www.themoneymadam.com/2012/09/dividend-machine-for-week-of-9242012.html

http://www.themoneymadam.com/2016/01/watsco-wso-first-2016-money-madam-stock.html

http://www.themoneymadam.com/2016/02/watsco-wso-justifies-2016-portfolio.html
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