Shares of Leggett & Platt Incorporated (NYSE:LEG) will begin trading ex-dividend in 3 days. To qualify for the dividend check of US$0.38 per share, investors must have owned the shares prior to 21 September 2018, which is the last day the company’s management will finalize their list of shareholders to which they will send dividend payments. Investors looking for higher income-generating stocks to add to their portfolio should keep reading, as I examine Leggett & Platt’s latest financial data to analyse its dividend characteristics.

View our latest analysis for Leggett & Platt

5 questions I ask before picking a dividend stock

If you are a dividend investor, you should always assess these five key metrics:

• Is it the top 25% annual dividend yield payer?

• Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?

• Has dividend per share amount increased over the past?

• Is is able to pay the current rate of dividends from its earnings?

• Will it be able to continue to payout at the current rate in the future?

How well does Leggett & Platt fit our criteria?

The current trailing twelve-month payout ratio for the stock is 69.8%, meaning the dividend is sufficiently covered by earnings. However, going forward, analysts expect LEG’s payout to fall to 54.2% of its earnings, which leads to a dividend yield of around 3.6%. However, EPS should increase to $2.78, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.

If you want to dive deeper into the sustainability of a certain payout ratio, you may wish to consider the cash flow of the business. A business with strong cash flow can sustain a higher divided payout ratio than a company with weak cash flow.

Reliablity is an important factor for dividend stocks, particularly for income investors who want a strong track record of payment and a positive outlook for future payout. In the case of LEG it has increased its DPS from $1 to $1.52 in the past 10 years. It has also been paying out dividend consistently during this time, as you’d expect for a company increasing its dividend levels. This is an impressive feat, which makes LEG a true dividend rockstar.

In terms of its peers, Leggett & Platt produces a yield of 3.3%, which is high for Consumer Durables stocks but still below the market’s top dividend payers.

Next Steps:

With these dividend metrics in mind, I definitely rank Leggett & Platt as a strong income stock, and is worth further research for anyone who considers dividends an important part of their portfolio strategy. Given that this is purely a dividend analysis, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. There are three fundamental factors you should look at:

1. Future Outlook: What are well-informed industry analysts predicting for LEG’s future growth? Take a look at our free research report of analyst consensus for LEG’s outlook.

2. Valuation: What is LEG worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether LEG is currently mispriced by the market.

3. Other Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.