Last update on 2024-06-27

Conagra Brands (CAG) - Dividend Analysis (Final Score: 6/8)

Analyze Conagra Brands (CAG) with a comprehensive 8-criteria system to assess the stability and performance of its dividend policy. Final Score: 6/8.

Short Analysis - Dividend Score: 6

We're running Conagra Brands (CAG) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Dividend Yield Higher than the Industry Average?

Dividend yield is a financial ratio that shows how much a company pays out in dividends each year relative to its stock price. It is a measure of the return on investment for a stock from dividends alone.

Conagra Brands (CAG) currently boasts a dividend yield of 4.7453%, which is significantly higher than the industry average of 1.77%. This indicates that Conagra Brands is offering a more attractive return for dividend-focused investors. Historically, the company's dividend yield has fluctuated but generally remains above the industry average in recent years. For instance, in previous years it recorded 3.3217% (2022) and 3.4407% (2021). This uptick in dividend yield suggests strong shareholder returns, particularly appealing in a volatile market environment. In contrast, the stock price has seen fluctuations, closing recently at 28.66, while the dividends per share have shown a steady increase to 1.36 in 2023 from 0.7813 in 2003. Thus, the high dividend yield is a positive signal for potential investors seeking stable income.

Average annual Growth Rate higher than 5% in the last 20 years?

Analyzing whether the dividend growth rate exceeds 5% over the last 20 years involves studying the dividend per share (DPS) data. It's important because a higher than 5% growth rate suggests a strong and increasing dividend-paying ability, indicating financial health and potential attractiveness to dividend-seeking investors.

The provided Dividend Ratio data indicates a highly variable and inconsistent trend in Conagra Brands' (CAG) DPS over the last 20 years. There are significant reductions in years like 2006 and 2013-15, with zero dividends in the years 2011-12, and 2016. However, there are years with exceptionally high ratios such as 2012 (38.84%) and 2021 (28.56%). Given this volatility, calculating a precise 20-year growth rate exceeds a simple averaging approach and requires extensive annual analysis. The 3.81% Average Dividend Ratio suggests overall dividends have generally increased, but less than the 5% threshold on average. This trend can be considered relatively weak for potential investors seeking stable, robust growth.

Average annual Payout Ratio lower than 65% in the last 20 years?

The payout ratio measures the percentage of earnings a company distributes to its shareholders as dividends and is important for assessing dividend sustainability.

The average payout ratio for Conagra Brands (CAG) over the last 20 years is 42.15%, which is well below the 65% threshold. This suggests that the company has generally maintained a conservative approach towards its dividend payments, ensuring that a sizable portion of its earnings is retained for reinvestment or other corporate purposes. While there are few years where the payout ratio has exceeded 65%, including 2010, 2014, and recent years 2021 and 2023, the long-term average remains healthy. This trend is good as it indicates that Conagra Brands generally has a sustainable dividend policy.

Dividends Well Covered by Earnings?

Dividends are well covered by the earnings

When analyzing the extent to which dividends are covered by earnings, it's essential to consider the Earnings Per Share (EPS) in relation to the Dividend Per Share (DPS). A general benchmark is that a payout ratio (dividends/EPS) of less than 1 indicates that a company is earning sufficiently to cover dividends. If the ratio exceeds 1, it suggests that the company is paying more in dividends than it generates in earnings, which might indicate future sustainability issues. For Conagra Brands (CAG), the dividends' coverage ratio saw fluctuations over the evaluation period (!) from 0.31x (2008) to a whopping -1.31x (2015). Notably, during 2014 and 2015, negative earnings severely impacted the coverage ratio, demonstrating an inability to support dividends from earnings. Encouragingly, there have been improvements in subsequent years, such as 2023 having a ratio of around 0.95x(!). This uptrend from prior years indicates a healthy move towards better dividend coverage by earnings, yet historical volatility remains a cautionary signal.

Dividends Well Covered by Cash Flow?

This criterion evaluates whether a company's free cash flow is sufficient to cover the dividend payments it makes to shareholders. It is crucial because if a company consistently pays out more in dividends than it generates in free cash flow, it may be at risk of having to cut its dividend, take on debt, or both.

The historical trend of Conagra Brand’s (CAG) free cash flow coverage of dividends paints a mixed picture. Between 2003 and 2005, Conagra Brands had a strong coverage ratio above 1, indicating that its free cash flow was more than sufficient to cover its dividend payouts. However, from 2006-2009, the coverage ratio notably dipped below 1, even turning negative in some years (-0.93 in 2008 and -1.09 in 2009), indicating that the company’s free cash flow was insufficient to cover its dividend commitments during these years. Since 2010, although there's sporadic improvement, the coverage ratio fluctuates and remains below 1 for most years, illustrating struggling consistency in covering dividend payouts with free cash flow alone. In recent years, there's a sign of recovery with a rising trend from 2020 to 2023, peaking at 0.985 in 2023. Still, this value is slightly below the threshold of 1. Given this trend, the coverage of dividends by cash flow remains tenuous, suggesting potential difficulties in sustaining or increasing dividend payouts without improved free cash flow generation.

Stable Dividends Since the Company Began Paying Dividends?

Stability in dividends implies consistent or growing dividend payouts, crucial for income-seeking investors relying on dividends as a steady income source.

Analyzing the dividend per share data for Conagra Brands (CAG) over the past 20 years reveals a generally stable trend with a few fluctuations. The dividend per share decreased significantly from $0.8498 in 2005 to $0.6327 in 2006, representing a drop of approximately 25.55%. Following this decline, the dividend per share rose steadily, even showing remarkable growth from $1.0049 in 2013 to $1.36 in 2023. Although there was a notable decrease in one year, Conagra Brands has managed to maintain and grow its dividend payouts over the long term. Thus, the overall trend can be considered somewhat positive but with cautionary notes regarding that one significant drop.

Dividends Paid for Over 25 Years?

Evaluating whether a company has consistently paid dividends for over 25 years can provide insight into its long-term financial stability and commitment to returning value to shareholders.

Conagra Brands (CAG) has demonstrated a consistent track record of dividend payments over the past 25 years, as evidenced by the provided data. From 1998 to 2023, dividends per share have shown a general upward trend, starting at $0.50 and reaching $1.36. This indicates a long-term commitment to returning value to its shareholders. The periods with steady dividends (2014 to 2017) followed by increases show resilience and strategic reinvestment. The overall trend is positive and suggests strong financial health, making it a good indicator for potential investors.

Reliable Stock Repurchases Over the Past 20 Years?

The criterion assesses the frequency and consistency of a company's stock repurchases over a significant period, such as 20 years. Significant and regular stock repurchases can indicate confidence in the company's own stock value, a commitment to returning value to shareholders, and effective capital management.

Over the last 20 years, Conagra Brands (CAG) has demonstrated a somewhat inconsistent stock repurchase strategy. The number of outstanding shares decreased from 530.7 million in 2003 to 478.9 million in 2023, highlighting periods of both repurchasing and increased share count. Notable repurchase years include 2005, 2007-2011, 2013, 2015, 2017-2018, and 2021-2023. Nevertheless, the average annual change in shares is -0.432%, indicating a slow and sporadic reduction in share count. While some years showed significant repurchases, others exhibited negligible or reverse trends. This irregularity may suggest fluctuating financial health or alternative capital allocation priorities, which could be a red flag for conservative investors.