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QQQ   270.75 (-3.28%)
AAPL   142.20 (-5.10%)
MSFT   235.37 (-2.36%)
META   137.26 (-3.07%)
GOOGL   96.43 (-3.62%)
AMZN   114.28 (-3.16%)
TSLA   267.87 (-6.93%)
NVDA   120.93 (-5.05%)
NIO   15.59 (-10.04%)
BABA   78.52 (-3.05%)
AMD   63.92 (-6.50%)
T   15.52 (-1.96%)
MU   49.86 (-2.24%)
CGC   2.82 (-7.24%)
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NFLX   239.19 (-2.45%)
S&P 500   3,636.45 (-2.22%)
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QQQ   270.75 (-3.28%)
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MSFT   235.37 (-2.36%)
META   137.26 (-3.07%)
GOOGL   96.43 (-3.62%)
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TSLA   267.87 (-6.93%)
NVDA   120.93 (-5.05%)
NIO   15.59 (-10.04%)
BABA   78.52 (-3.05%)
AMD   63.92 (-6.50%)
T   15.52 (-1.96%)
MU   49.86 (-2.24%)
CGC   2.82 (-7.24%)
F   11.44 (-6.08%)
GE   62.26 (-3.41%)
DIS   96.98 (-2.43%)
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PYPL   88.87 (-2.47%)
PFE   44.18 (-0.56%)
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Conagra Brands (NYSE:CAG) Is A Must-Buy For Dividend Growth Investors

Conagra Brands (NYSE:CAG) Is A Must-Buy For Dividend Growth InvestorsConagra Brands Knocks It Out Of The Park

Conagra Brands (NYSE:CAG) has long been a favorite among favorites. The consumer staples sector isn’t a headline-making sector but it is one that pays steady dividends and most stocks have at least some expectation of dividend growth. Within the group, there are value plays, high yield plays, turnaround plays, and growth plays and Conagra Brands is all of that.

The company spent the last few years trimming down the portfolio to focus on its core, premium labels, and that effort paid off. When the pandemic hit the company was well-positioned for stay-at-home trends and there is no sign of it letting up. Conagra Brands labels include but are not limited to Birds Eye, Banquet, Sim Jim, Vlassic, Dukes, Fronterra, and Chef Boy Ardee.

Conagra Raises The Dividend

Conagra released its calendar 3Q/fiscal 4Q earnings report this morning and confirmed what I have been seeing within the group all year; conditions support aggressive dividend growth. The company declared its latest distribution and raised it for the first time in three years. The increase is more than noteworthy for its size, just shy of 30% a move that increases the yield to just over 3.0%. Looking at the metrics, the payout ratio goes up as well but only by 400 basis points and is still running below the 40% mark relative to this quarter’s earnings. I’ll get to that in a minute, the salient point here is the new dividend is attractive, safe, and has an outlook for future growth.


Conagra Brands Beats, Guides Higher

The 4th quarter was a good one for Conagra Brands. Total revenue grew 12.1% to $2.28 billion. This is $0.07 billion better than expected and driven by strong organic sales growth. Net organic sales growth topped 15% versus the 10.9% expected by the analysts. The bottom line results are even better. Adjusted EPS came in at $0.70 or $0.13 better than estimated. In terms of growth, the 4th quarter EPS grew by 62%.

On a segment basis, the company says it saw margin growth in all four primary segments. Within that, the company saw “significant net sales growth in all three retail categories”. At the company level, the net margin grew 800 basis points over the last year while operating margins increased by 450.

The EPS is important because it is worth 30% of the FY guidance and the guidance has been increased. The company is expecting fiscal 2nd quarter adjusted EPS in the range of $0.70 to $0.74 versus the consensus $0.71. What this means is that not only are we to expect another round of analysts upgrades for earnings etc, trends suggest the company could raise or beat its own guidance before the end of the quarter.

Looking to the balance sheet, the company is using its earnings well, not just giving money back to shareholders. The company says it has been paying down debt and will reach its targeted 3.5 to 3.6X leverage ratio by the 3rd quarter of fiscal 2021. That’s just two quarters away.

The Technical Outlook: Conagra Brands Is About To Melt Up

A melt-up is defined as a rapid upswing in prices driven by an equally rapid improvement in outlook. And that’s what we have. Conagra was expected to do well in the quarter but these results are not only good, but they’re also better than expected and come with improved guidance. Along with that is an increased dividend to attract new bulls and that has shares up 2.5% in the pre-market session. The move has price action above the short-term moving average and supported by the indicators.

There might be a pull-back in prices to test support, possibly as low as the EMA near $36, but I wouldn’t count on it. Even with today’s jump, the stock is still trading at only 15X earnings while other high-quality consumer staples names like Hormel (NYSE:HRL), McCormick (NYSE:MKC), and Mondelez (NASDAQ:MDLZ) are all trading at a significantly higher valuation

Conagra Brands (NYSE:CAG) Is A Must-Buy For Dividend Growth Investors

Companies Mentioned in This Article

CompanyMarketRank™Current PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Conagra Brands (CAG)
2.0199 of 5 stars
$33.29-0.5%3.97%18.09Hold$35.67
McCormick & Company, Incorporated (MKC)
2.7153 of 5 stars
$73.35-2.3%2.02%28.99Hold$93.25
Mondelez International (MDLZ)
2.9411 of 5 stars
$56.57-2.7%2.47%20.57Buy$72.85
Hormel Foods (HRL)
1.996 of 5 stars
$46.01-2.0%2.26%25.14Hold$48.00
Compare These Stocks  Add These Stocks to My Watchlist 

Should you invest $1,000 in Conagra Brands right now?

Before you consider Conagra Brands, you'll want to hear this.

MarketBeat keeps track of Wall Street's top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on... and Conagra Brands wasn't on the list.

While Conagra Brands currently has a "Hold" rating among analysts, top-rated analysts believe these five stocks are better buys.

View The Five Stocks Here

Thomas Hughes

About Thomas Hughes

Contributing Author: Technical and Fundamental Analysis

Thomas got his start with the markets while working as a Chef. In 2005 a chance invitation to attend the seminar “How To Buy And Sell Your Own Stocks” altered his worldview. Soon trading and stocks consumed his every waking moment to the point of excluding all else. Thomas now enjoys a much different lifestyle engaged in his true passion, uncovering great investments.
Contact Thomas Hughes via email at tmhughes.writeon@gmail.com.
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