There's A Lot To Like About Conagra Brands' (NYSE:CAG) Upcoming US$0.28 Dividend

Readers hoping to buy Conagra Brands, Inc. (NYSE:CAG) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. You can purchase shares before the 28th of January in order to receive the dividend, which the company will pay on the 3rd of March.

Conagra Brands's next dividend payment will be US$0.28 per share, and in the last 12 months, the company paid a total of US$1.10 per share. Calculating the last year's worth of payments shows that Conagra Brands has a trailing yield of 3.2% on the current share price of $34.38. 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.

Check out our latest analysis for Conagra Brands

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. That's why it's good to see Conagra Brands paying out a modest 40% of its 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. It distributed 28% of its free cash flow as dividends, a comfortable payout level for most companies.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

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 earnings fall far enough, the company could be forced to cut its dividend. For this reason, we're glad to see Conagra Brands's earnings per share have risen 17% per annum over the last five years. The company has managed to grow earnings at a rapid rate, while reinvesting most of the profits within the business. Fast-growing businesses that are reinvesting heavily are enticing from a dividend perspective, especially since they can often increase the payout ratio later.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, Conagra Brands has increased its dividend at approximately 3.2% a year on average. Earnings per share have been growing much quicker than dividends, potentially because Conagra Brands is keeping back more of its profits to grow the business.

The Bottom Line

Is Conagra Brands worth buying for its dividend? Conagra Brands has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past 10 years, but the conservative payout ratio makes the current dividend look sustainable. Conagra Brands looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

In light of that, while Conagra Brands has an appealing dividend, it's worth knowing the risks involved with this stock. For example - Conagra Brands has 2 warning signs we think you should be aware of.

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.

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. 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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