Conagra Brands: An Attractive Dividend Play

Conagra Brands: An Attractive Dividend Play


CAG has provided investors quarterly dividends going back to 1990, quite an impressive history of 32 years of dividends.

Over that impressive history, the dividends have mostly been heading higher, but in 2006, they cut the dividend.

That being said, the latest quarterly dividend was the highest in the company’s long history.

This idea was discussed in more depth with members of my private investing community, Cash Builder Opportunities. Learn More »

Jacobs Stock Photography Ltd/DigitalVision via Getty Images Written by Nick Ackerman

Conagra Brands ( CAG ) might not be the first name that comes to mind when you think of a packaged foods company. However, the stock presents an appetizing valuation with an enticing side of a healthy dividend yield. With that attractive dividend yield comes significant dividend growth over the last couple of years in particular.

The food business is one of the least exciting areas to invest in. They certainly aren’t going to be catching headlines most of the time. That being said, food has a natural growing demand. As the worldwide population grows, more food will be necessary to feed the ever-increasing number of mouths.

The changing tastes of the consumers and product innovation can certainly change which company takes the growing pie. I believe that CAG has recognizable brands that consumers search for. They own the brands of Birds Eye, Marie Callender’s, Banquet, Healthy Choice, and Slim Jim, to name a few. We know that the packaged food industry can be pretty competitive. No place more so than the frozen food department. That’s primarily where CAG’s brands are located. Take a quick look next time you are in Kroger ( KR ), and you’ll realize that freezers can be pretty limited. That being said, CAG has been able to take share away from these competitors in the space. Notably, they have gained market share in the snacks category as well. This makes CAG a compelling investment in the food packaging space that is worth diving into. The stock has paid dividends for around 32 years now , with only one cut in its history. On top of that, the dividend growth has been simply incredible over the last couple of years now. Earnings Topping Estimates And Growth Potential

In Q1, 2021, CAG had beat both EPS and revenue estimates that analysts had set out. However, revenue had declined slightly year-over-year. This was primarily attributed to the elevated demand last year when sheltering in place was more commonplace around the globe. They commented on this, and the fact that they expect this to be offset as their price increases didn’t go into place until the end of Q1. Thus, the offsetting factors of inflation haven’t been baked into the stock yet. On an organic net sales basis, the 0.4% decrease during the quarter was driven by a 2% decline in volume from lapping last year’s elevated demand. This decline was almost entirely offset by favorable brand mix, and the pricing actions we’ve taken to date in response to the inflationary environment. There are two items I want to call out on price mix. First, as a reminder, the majority of our domestic retail pricing actions just started to hit shelves at the end of Q1. So the benefit in the quarter was limited compared to the benefits we expect to receive over the course of fiscal ’22. As they showed above in the slide, they still gained market share, which will also benefit if they can continue to pull that off. Besides just the growing market share of the various segments, the actual demand for the products and brands in these segments have grown, and it is expected that they should continue to grow as well in the future. (Source – Presentation)

Again, I would go back to when I mentioned at the opening of this article that a rising population will naturally increase demand across the board from consumers. Over the last year, the frozen foods segment was among the fastest-growing category in the grocery store. The pandemic jump-started this, but it was a trend of growth for the last couple of years before that.

Of course, the snacks business that they have been pushing into is also showing even better growth. A few brands in that segment that CAG owns are Slim Jim, Boom Chicka Pop, and Poppycock.

All this leads to guidance that management gave investors of $2.50 for 2022 EPS. That was the original target they had laid out but mentioned that […]

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