In light of a slow economy in recent years, it’s remarkable when you can find a company that has delivered strong dividends and impressive returns.

It’s even more impressive when that company is building on a winning streak of more than four decades, allowing it to carry the vaunted title of Dividend Aristocrat. 

With a recession in full swing in 2008 and 2009, one would think this innovative furnishings company would have fallen on hard times — but it produced positive returns in those two years as the demand for furniture did not slump along with the economy. A stream of product improvements and innovations in sleep technology have helped this company stay relevant and profitable.

And while furniture may not be the sexiest industry in the world, four decades of rising dividends certainly is. 

Founded in 1883, Leggett & Platt (NYSE: LEG) has not only stood the test of time — it has thrived during turbulent periods. That’s allowed it to increase its dividend for 42 straight years, a feat achieved by only two other members of the S&P 500.

The stock yields a market-beating 3.8%. While that might seem a little small to more yield-hungry investors, consider that if you reinvest dividends, you’d be sitting on a much larger yield-on-cost after only a few years. This is part of what makes Leggett & Platt what we at StreetAuthority call a “Retirement Savings Stock” — a stock that, because of its above-average yield and dependable business model, makes a perfect investment for those who are near or at retirement age. 

Diversification has been key to Leggett & Platt’s success, with 20 different business units, more than 18,000 employee-partners and 130 facilities in 18 countries.

The company operates in four distinct segments:

1. Residential furnishings: Leggett & Platt is an industry leader in bedding accessories, carpet cushions and mattress springs.

2. Industrial materials: The company is also the leading U.S. producer of steel wire and specializes in shaped wire, coated wire and erosion control products.

3. Commercial fixtures and components: Leggett & Platt makes fixtures and point-of-purchase displays for retail outlets and components of office furnishings.

4. Specialized products: Leggett & Platt also makes a variety of other products, such as automotive seating support and comfort systems, quilting and sewing equipment, and wire-forming equipment used in bedding and vehicles.

For 2012, Leggett & Platt’s earnings per share (EPS) from continuing operations was $1.46, a record for the company. Analysts recently raised their EPS forecasts for 2013, to between $1.50 and $1.75 per share. That’s because sales are expected to be $3.75 billion to $3.95 billion, reflecting revenue growth of 1% to 6%. 

Improved operating margins helped Leggett & Platt post strong bottom-line results in the fourth quarter of 2012, with earnings surging more than 45% from the same quarter the previous year, to 32 cents per share.

Last year also marked the fifth consecutive year that Leggett & Platt shares beat the S&P 500, with an average annual gain of 19.7%, compared with 14.6% for the S&P. Take a look at its stock’s performance since 2009:

Leggett & Platt is in the midst of a three-part strategic plan announced in late 2007 to divest itself of low-performing businesses and focus on improving margins and returns, with the goal of annual top-line growth of 4% to 5%. However, strategic acquisitions have also been a focus for Leggett & Platt, which enhanced its industrial materials portfolio last year with its purchase of Western Pneumatic Tube Holding, a leading provider of aerospace components. 

Compared with its competitors, Leggett & Platt has enjoyed a higher return on equity (15.5% compared with 11.6%) and net margins (6.7% versus 4%). Its forward price-to-earnings ratio of about 20 is in line with competitors, but its 3.5% dividend is more attractive than the industry average of 2.5%. 

Risks to consider: Competitive pressures could make it difficult for Leggett & Platt to implement new strategies, and intense regional competition makes it difficult to stand out. The company has done well, but changes in consumer preferences and budgets can change at a moment’s notice. Volatility in raw material prices is also a significant risk that could affect Leggett & Platt’s margins. Finally, a quarter of Leggett & Platt’s sales are made overseas, which exposes the company to currency fluctuations and political and economic risks. Even faced with these risks, however, Leggett & Platt still looks like a solid choice with its strong dividend and track record of steady growth in good and bad economies alike. 

Action to take –> Buy Leggett & Platt at up to $35 a share. With a 3.5% dividend, solid strategy and strong growth, the stock could climb to $40 to $45 a share within the next 12 months on the steady demand for home, office and hotel furnishings.

P.S. — Stocks like Leggett & Platt are perfect for investors who are near or at retirement age and are seeking a second income. We call these “Retirement Savings Stocks“… they can hand you a “second income” as much as 14 times what you can get with CDs, seven times higher than bonds, and as much as three times higher than brand-name Dow stocks. To learn more about them, go here.