Stock Analysis

Conagra Brands (NYSE:CAG) Will Pay A Larger Dividend Than Last Year At US$0.31

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The board of Conagra Brands, Inc. (NYSE:CAG) has announced that it will be increasing its dividend on the 2nd of September to US$0.31. This will take the dividend yield from 3.2% to 3.3%, providing a nice boost to shareholder returns.

See our latest analysis for Conagra Brands

Conagra Brands' Payment Has Solid Earnings Coverage

If the payments aren't sustainable, a high yield for a few years won't matter that much. However, Conagra Brands' earnings easily cover the dividend. This means that most of its earnings are being retained to grow the business.

Over the next year, EPS is forecast to fall by 8.8%. Assuming the dividend continues along recent trends, we believe the payout ratio could be 46%, which we are pretty comfortable with and we think is feasible on an earnings basis.

NYSE:CAG Historic Dividend July 16th 2021

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. Since 2011, the dividend has gone from US$0.80 to US$1.10. This works out to be a compound annual growth rate (CAGR) of approximately 3.2% 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.

The Dividend Looks Likely To Grow

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Conagra Brands has seen EPS rising for the last five years, at 59% per annum. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.

We Really Like Conagra Brands' Dividend

Overall, a dividend increase is always good, and we think that Conagra Brands is a strong income stock thanks to its track record and growing earnings. The earnings easily cover the company's distributions, and the company is generating plenty of cash. However, it is worth noting that the earnings are expected to fall over the next year, which may not change the long term outlook, but could affect the dividend payment in the next 12 months. All of these factors considered, we think this has solid potential as a dividend stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 3 warning signs for Conagra Brands (of which 1 can't be ignored!) you should know about. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.

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What are the risks and opportunities for Conagra Brands?

Conagra Brands, Inc., together with its subsidiaries, operates as a consumer packaged goods food company in North America.

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  • Trading at 63.4% below our estimate of its fair value

  • Earnings are forecast to grow 17.36% per year


  • Debt is not well covered by operating cash flow

  • Large one-off items impacting financial results

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