{"id":58501,"date":"2023-09-08T10:26:32","date_gmt":"2023-09-08T14:26:32","guid":{"rendered":"https:\/\/ifintechworld.com\/investing\/conagra-brands-cash-flow-increases-the-safety-of-its-dividend-yield\/"},"modified":"2023-09-08T10:26:35","modified_gmt":"2023-09-08T14:26:35","slug":"conagra-brands-cash-flow-increases-the-safety-of-its-dividend-yield","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=58501","title":{"rendered":"Conagra Brands\u2019 Cash Flow Increases The Safety Of Its Dividend Yield"},"content":{"rendered":"
\n

Recap from July\u2019s Picks<\/strong><\/h3>\n

On a price return basis, the Safest Dividend Yields Model Portfolio (-3.0%) underperformed the S&P 500 (-2.8%) by 0.2% from July 20, 2023 through August 21, 2023. On a total return basis, the Model Portfolio (-2.5%) outperformed the S&P 500 (-2.8%) by 0.3% over the same time. The best performing large-cap stock was up 21%, and the best performing small-cap stock was up 9%. Overall, 11 out of the 20 Safest Dividend Yield stocks outperformed their respective benchmarks (S&P 500 and Russell 2000) from July 20, 2023 through August 21, 2023.<\/p>\n

This Model Portfolio only includes stocks that earn an attractive or very attractive rating, have positive free cash flow and economic earnings, and offer a dividend yield greater than 3%. Companies with strong free cash flow (FCF) provide higher quality and safer dividend yields because strong FCF is proof they have the cash to support the dividend. I think this portfolio provides a uniquely well-screened group of stocks that can help clients outperform.<\/p>\n

Featured Stock for August: Conagra Brands
\n
\n CAG
\n <\/fbs-ticker> <\/strong><\/h3>\n

Conagra Brands Inc. (CAG) is the featured stock in August\u2019s Safest Dividend Yields Model Portfolio.<\/p>\n

Since fiscal 2018, Conagra Brands has grown revenue by 9% compounded annually and net operating profit after tax (NOPAT) by 13% compounded annually. Conagra Brands\u2019 NOPAT margin improved from 10.5% in fiscal 2018 to 12.3% in fiscal 2023 (year ends May 28, 2023). An improved NOPAT margin is enough to offset a slight decline in invested capital turns and help maintain the company\u2019s return on invested capital (ROIC) around 6% over the same time.<\/p>\n

<\/fbs-ad><\/p>\n

Figure 1: Conagra Brands\u2019 Revenue & NOPAT Since 2018<\/strong><\/p>\n

Free Cash Flow Exceeds Regular Dividend Payments<\/strong><\/h3>\n

Conagra Brands has increased its regular dividend from $0.21\/share in 1Q18 to $0.35\/share in 3Q23. The current quarterly dividend, when annualized, equals $1.40\/share and provides an 4.7 % dividend yield.<\/p>\n

More importantly, Conagra Brands\u2019 free cash flow (FCF) easily exceeds its regular dividend payments. From fiscal 2020 to fiscal 2023, Conagra Brands generated $5.2 billion (21% of current enterprise value) in FCF while paying $2.1 billion in dividends. See Figure 2.<\/p>\n

Figure 2: Conagra Brands\u2019<\/strong> FCF Vs. Regular Dividends Since 2020<\/strong><\/p>\n

As Figure 2 shows, Conagra Brands\u2019 regular dividends are backed by a history of reliable cash flows. Dividends from companies with low or negative FCF are less dependable since the company may not be able to sustain paying dividends.<\/p>\n

CAG Is Undervalued<\/strong><\/h3>\n

At its current price of $30\/share, Conagra Brands has a price-to-economic book value (PEBV) ratio of 0.8. This ratio means the market expects Conagra Brands\u2019 NOPAT to permanently fall 20% from TTM levels. This expectation seems overly pessimistic given that Conagra Brands has grown NOPAT by 13% compounded annually since fiscal 2018 and 5% compounded annually since fiscal 2012.<\/p>\n

If Conagra Brands\u2019 NOPAT margin falls to 11% (vs. 12.3% in the TTM and 10-year average of 11.5%) and the company\u2019s revenue grows by 3% compounded annually for the next decade, the stock would be worth $45+\/share today \u2013 a 53% upside. See the math behind this reverse DCF scenario. In this scenario, Conagra Brands\u2019 NOPAT would grow 2% compounded annually through 2032. Should the company\u2019s NOPAT grow more in line with historical growth rates, the stock has even more upside.<\/p>\n

Critical Details Found in Financial Filings by My Firm\u2019s Robo-Analyst Technology<\/strong><\/p>\n

Below are specifics on the adjustments I make based on Robo-Analyst findings in Conagra Brands\u2019 10-K and 10-Qs:<\/p>\n

Income Statement: I made $839 million in adjustments with a net effect of removing $54 million in non-operating expenses (<1% of revenue).<\/p>\n

Balance Sheet: I made $8.8 billion in adjustments to calculate invested capital with a net increase of $8.1 billion. The most notable adjustment was $5.1 billion (29% of reported net assets) in asset write downs.<\/p>\n

Valuation: I made $10.7 billion in adjustments, with a net decrease of $10.5 billion in shareholder value. Apart from $9.4 billion in total debt, the most notable adjustment to shareholder value was $1.1 billion in net deferred tax liabilities. This adjustment represents 8% of Conagra Brands\u2019 market value.<\/p>\n

Disclosure: David Trainer, Kyle Guske II, Italo Mendon\u00e7a, and Hakan Salt receive no compensation to write about any specific stock, style, or theme.<\/em><\/p>\n<\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Recap from July\u2019s Picks On a price return basis, the Safest Dividend Yields Model Portfolio (-3.0%) underperformed the S&P 500 (-2.8%) by 0.2% from July 20, 2023 through August 21, 2023. On a total return basis, the Model Portfolio (-2.5%) outperformed the S&P 500 (-2.8%) by 0.3% over the same time. The best performing large-cap […]<\/p>\n","protected":false},"author":1,"featured_media":58502,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[239],"tags":[83],"class_list":["post-58501","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-investing","tag-featured"],"yoast_head":"\nConagra Brands\u2019 Cash Flow Increases The Safety Of Its Dividend Yield | iFintechWorld<\/title>\n<meta name=\"description\" content=\"Recap from July\u2019s Picks On a price return basis, the Safest Dividend Yields Model Portfolio (-3.0%) underperformed the S&P 500 (-2.8%) by 0.2% from\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/ifintechworld.com\/?p=58501\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" 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