ConAgra’s 3.7% Dividend Yield Beats Branded Foods Competitors – and Has Upside

At 3.7%, Con-Agra’s (CAG) dividend yield doesn’t qualify as eye-popping. But for dividend investors who prefer a bread-and-butter approach over long-shot high-yield plays, the maker of Peter Pan peanut butter, Orville Redenbacher popcorn, Slim Jim snacks and a host of other packaged foods is worth a close look. ConAgra’s dividend yield is stronger than other makers of branded grocery products, and if history is any guide it still has some upside potential.

CAG Dividend Yield Chart

CAG Dividend Yield data by YCharts

Yes, we know. These days, any company that makes branded foods – whether it’s Kellogg (K), Kraft (KFT) or Campbell’s Soup (CPB) – is in a pickle: passing rising commodity prices along to consumers is a lot harder than it once was, because today’s shoppers are prepared to abandon premium-priced groceries for cheaper house brands. And ConAgra’s competitive position isn’t quite as strong as some other rivals, either, because its product line is saddled with prominent offerings that aren’t the number-one brand. That’s one reason profit margins haven’t yet recovered to pre-crisis level: sales are rising because ConAgra is raising prices, but margins aren’t matching that upturn because ConAgra’s been eating some of the rising costs to hold onto customers.

CAG Profit Margin Chart

CAG Profit Margin data by YCharts

When the economy firms and consumers feel better, ConAgra’s margins should widen a bit; that would let the company keep on bumping up its dividend payout. Worth noting: after raising its dividend yearly for 30 years, ConAgra cut back its payout in early 2006, as it restructured. But it’s since resumed its uptrend.

CAG Dividend Chart

CAG Dividend data by YCharts

Of course, while appealing dividends offer a chance to pull in some income in the current low-interest-rate environment, yield junkies like us must always keep in mind that we’re also buying the underlying stock. So investigate. You can get started by using the stock symbol links above, and maybe later curling up with the 10-K for a good read.

James P. Miller is an editor for the YCharts Pro Investor Service which includes professional stock charts, stock ratings and portfolio strategies.

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