Yahoo Finance Read This Before Considering Conagra Brands, Inc. (NYSE:CAG) For Its Upcoming US$0.21 Dividend
Conagra Brands, Inc. (NYSE:CAG) is about to trade ex-dividend in the next 4 days. Ex-dividend means that investors that purchase the stock on or after the 30th of January will not receive this dividend, which will be paid on the 3rd of March.
Conagra Brands's next dividend payment will be US$0.21 per share, and in the last 12 months, the company paid a total of US$0.85 per share. Calculating the last year's worth of payments shows that Conagra Brands has a trailing yield of 2.6% on the current share price of $32.28. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! We need to see whether the dividend is covered by earnings and if it's growing.
See our latest analysis for Conagra Brands
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Conagra Brands is paying out an acceptable 51% of its profit, a common payout level among most companies. A useful secondary check can be to evaluate whether Conagra Brands generated enough free cash flow to afford its dividend. It distributed 45% of its free cash flow as dividends, a comfortable payout level for most companies.
It's positive to see that Conagra Brands's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. This is why it's a relief to see Conagra Brands earnings per share are up 2.7% per annum over the last five years. Earnings per share growth has been slim, and the company is already paying out a majority of its earnings. While there is some room to both increase the payout ratio and reinvest in the business, generally the higher a payout ratio goes, the lower a company's prospects for future growth.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last ten years, Conagra Brands has lifted its dividend by approximately 1.1% a year on average.
The Bottom Line
Is Conagra Brands an attractive dividend stock, or better left on the shelf? Earnings per share growth has been modest and Conagra Brands paid out over half of its profits and less than half of its free cash flow, although both payout ratios are within normal limits. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Conagra Brands's dividend merits.
Wondering what the future holds for Conagra Brands? See what the 14 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
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