Conagra Brands (NYSE:CAG) Will Pay A Dividend Of $0.35

The board of Conagra Brands, Inc. (NYSE:CAG) has announced that it will pay a dividend of $0.35 per share on the 26th of November. This makes the dividend yield 7.3%, which will augment investor returns quite nicely.

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Conagra Brands' Payment Could Potentially Have Solid Earnings Coverage

A big dividend yield for a few years doesn't mean much if it can't be sustained. Before this announcement, Conagra Brands was paying out 79% of earnings, but a comparatively small 59% of free cash flows. This leaves plenty of cash for reinvestment into the business.

The next year is set to see EPS grow by 18.4%. If the dividend continues along recent trends, we estimate the payout ratio will be 70%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

View our latest analysis for Conagra Brands

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2015, the annual payment back then was $1.00, compared to the most recent full-year payment of $1.40. This works out to be a compound annual growth rate (CAGR) of approximately 3.4% a year over that time. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.

Conagra Brands May Find It Hard To Grow The Dividend

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. In the last five years, Conagra Brands' earnings per share has shrunk at approximately 2.7% per annum. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed. Earnings are predicted to grow over the next year, but we would remain cautious until a track record of earnings growth is established.

Our Thoughts On Conagra Brands' Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Conagra Brands' payments, as there could be some issues with sustaining them into the future. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. This company is not in the top tier of income providing stocks.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've identified 2 warning signs for Conagra Brands (1 is a bit concerning!) that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.