Stock Analysis

Conagra Brands' (NYSE:CAG) Dividend Will Be Increased To $0.33

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Conagra Brands, Inc.'s (NYSE:CAG) periodic dividend will be increasing on the 1st of September to $0.33, with investors receiving 5.6% more than last year's $0.313. This makes the dividend yield 3.7%, which is above the industry average.

See our latest analysis for Conagra Brands

Conagra Brands' Earnings Easily Cover The Distributions

A big dividend yield for a few years doesn't mean much if it can't be sustained. Conagra Brands was earning enough to cover the previous dividend, but it was paying out quite a large proportion of its free cash flows. By paying out so much of its cash flows, this could indicate that the company has limited opportunities for investment and growth.

Over the next year, EPS is forecast to expand by 57.3%. If the dividend continues along recent trends, we estimate the payout ratio will be 44%, which is in the range that makes us comfortable with the sustainability of the dividend.

NYSE:CAG Historic Dividend July 26th 2022

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The annual payment during the last 10 years was $0.96 in 2012, and the most recent fiscal year payment was $1.25. This works out to be a compound annual growth rate (CAGR) of approximately 2.7% a year over that time. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.

The Dividend Has Growth Potential

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. We are encouraged to see that Conagra Brands has grown earnings per share at 8.3% per year over the past five years. Since earnings per share is growing at an acceptable rate, and the payout policy is balanced, we think the company is positioning itself well to grow earnings and dividends in the future.

Our Thoughts On Conagra Brands' Dividend

Overall, we always like to see the dividend being raised, but we don't think Conagra Brands will make a great income stock. The company hasn't been paying a very consistent dividend over time, despite only paying out a small portion of earnings. We would probably look elsewhere for an income investment.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, Conagra Brands has 4 warning signs (and 1 which doesn't sit too well with us) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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