Only Four Days Left To Cash In On Conagra Brands' (NYSE:CAG) Dividend
Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Conagra Brands, Inc. (NYSE:CAG) is about to trade ex-dividend in the next four days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Thus, you can purchase Conagra Brands' shares before the 27th of April in order to receive the dividend, which the company will pay on the 1st of June.
The company's next dividend payment will be US$0.33 per share. Last year, in total, the company distributed US$1.32 to shareholders. Based on the last year's worth of payments, Conagra Brands has a trailing yield of 3.5% on the current stock price of $37.45. 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! As a result, readers should always check whether Conagra Brands has been able to grow its dividends, or if the dividend might be cut.
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. It paid out 78% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. We'd be worried about the risk of a drop in earnings. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Over the last year, it paid out more than three-quarters (81%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.
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. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're encouraged by the steady growth at Conagra Brands, with earnings per share up 6.3% on average over the last five years. Decent historical earnings per share growth suggests Conagra Brands has been effectively growing value for shareholders. However, it's now paying out more than half its earnings as dividends. Therefore it's unlikely that the company will be able to reinvest heavily in its business, which could presage slower growth in the future.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Conagra Brands has delivered 3.2% dividend growth per year on average over the past 10 years. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.
The Bottom Line
Has Conagra Brands got what it takes to maintain its dividend payments? Earnings per share have been growing modestly and Conagra Brands paid out a bit over half of its earnings and free cash flow last year. To summarise, Conagra Brands looks okay on this analysis, although it doesn't appear a stand-out opportunity.
However if you're still interested in Conagra Brands as a potential investment, you should definitely consider some of the risks involved with Conagra Brands. Every company has risks, and we've spotted 3 warning signs for Conagra Brands (of which 1 can't be ignored!) you should know about.
Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
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