Does Bill Miller Think Leggett & Platt Is Attractive?

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Bill Miller seems befuddled. In his July 2010 commentary, he wonders why investors keep purchasing 10-year Treasuries yielding about 3%, when companies like ExxonMobil offer much higher potential returns.

His formula for Exxon is straightforward: "A sum of the dividend yield, growth rate and share shrink could represent an attractive annual return even if the valuation stays the same, and the valuation is among the lowest the company has traded at in years." When you add up the components, Exxon could offer 16.4% returns per year in a low-return environment.

I'm no less baffled than Miller by investors' preference for bonds, but I do think he's on to something. To see whether more Miller-like opportunities like Exxon were out there, I looked for companies with:

A dividend yield greater than the 3% 10-year Treasury yield.
A five-year track record of dividend growth.
A history of repurchasing shares.
A price-to-earnings ratio less than 25.

Here's what I found:

Company	Yield	5-Year Dividend Growth	Share Shrink	P/E
Leggett & Platt (NYSE: LEG )	5.2%	11.3%	6.9%	16.9
Flexsteel Industries (Nasdaq: FLXS )	1.6%	(11.6%)	0%	11.5
Haverty Furniture Companies (NYSE: HVT )	0%	0%	0%	23.0

Source: Capital IQ, a division of Standard & Poor's.

From the table above, Leggett & Platt fits Miller's criteria perfectly. It pays a 5.2% dividend that has been growing 11.3%, on average, for the past five years. The company also trades under 17 times earnings and produces plenty of cash flow to repurchase shares. Competitors Flexsteel Industries and Haverty Furniture do not meet all of the criteria for our exercise.

Foolish bottom line
Would Bill Miller consider investing in Leggett & Platt? It meets all the criteria above, and it could offer a 23.4% return over time -- maintaining that dividend growth will be challenge in the future. In today's low-return environment, that's pretty attractive. I don't know why the market is offering up this opportunity, but as long as it is, Leggett & Platt could be worth pursuing further.

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Million Dollar Portfolio associate advisor David Meier does not own shares of any of the companies mentioned. The Motley Fool owns shares of ExxonMobil. The Fool's disclosure policy never goes out of style.

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