A Stock That Lets You Sleep Well at Night

Many people are more concerned with income than capital gains. Before ZIRP (zero interest rate policies) took effect following the 2008-09 financial crisis they typical held bonds, bank CDs or bond equivalent share-like utilities or REITs (real estate investment trusts). Yields on most of those vehicles are pretty skimpy right now, especially in a high inflation environment. If you are looking for income and total return why not consider Leggett & Platt as a much better alternative. The company's own description of what they do is shown below. Bedding makes up about 48% of sales, furniture products around 32% and specialized products the remaining 20% of revenues. Annual dividends have increased each year for half a century. At its June 23, 2022 quote of $34.59 LEG paid a current yield of 5.09%. That is well above most other income type shares and miles better than bank CDs or U.S. Treasuries. Long-term holders even get favorable tax treatment versus traditional interest-bearing accounts. Long-term growth has been decent and reasonably steady. Continuous shareholders pocketed total returns of 103.8% over exactly one decade. LEG's absolute share price performance almost paralleled the EPS growth. Back in June of 2012 the stock's P/E was well below normal at just shy of 12 times that year's final EPS. Once again traders are getting the chance to own LEG at about that same valuation. What is LEG really worth? Since 2012, a typical P/E ran about 18.0x, accompanied by around 3.55% in yield. Assume a slightly below average 17x multiple and LEG could easily rebound to north of $49 by early in 2023. If it takes a full year getting to that goal total return would be 42.5%, beating the heck out of all those more traditional income investments. I'm not alone in liking LEG for those with less than home run aspirations. Yahoo Finance sees LEG hitting $45.50 by this time next summer. Independent research from Morningstar is even more enthusiastic about Leggett & Platt. They assign the shares their highest, 5-star, rating. Morningstar does not deign to provide year-ahead targets but does let us know that they see present-day value for LEG as $43.59. The company's longer-term prospects appear bright. Value Line thinks LEG can trade between $65 and$95 per share not later than 2025-2027. The graphic below understates the currently available potential returns as it was calculated with LEG at $38.94 rather than $34.59. Option savvy traders who wish to play LEG via conservative naked put sales might wish to short Dec. 16, 2022 expiration date $30, $35 or $40 strike price puts. Actual pricing on those, with LEG at $34.51 on June 23, 2022, are shown below. Worst-case, forced purchase prices dropped to either $28.40, $31.44 or $33.30 respectively. Those provided downside protection of from 3.5% to 17.7% depending on the strike price(s) employed. Future stock market action can never be guaranteed. But I can tell you for sure that owning LEG at either of the two if exercised prices on the $30 and $35 strike prices would have been a winning position 100% of the time dating back to June of 2020. Leggett & Platt is a conservative, high-yielding stock with very tempting upside potential. It has offered traders exit points well above today's price each year since 2014. Buy some shares, sell some puts or consider doing both.

A Stock That Lets You Sleep Well at Night

This conservative, high-yielding stock has very tempting upside potential.

Columnist Conversation

CPI Beats Expectations, But Maybe Not the 'Whisper'?

This Holding Lights Up With Strong Earnings

Jobs Report Reaction: Incredibly Strong, But Questions to Ask

COLUMNIST TWEETS

Please Join or Log In to manage and receive alerts.