Should You Buy Conagra And Its 3.1% Dividend?
With new cases of the coronavirus spiking in the US and worldwide.
With the already historic unemployment levels and job losses in recent months.
And with many Blue-Chip stocks looking vulnerable when they’re supposed to be among the best areas to invest your capital.
There are few safe places to invest today. And this number grows smaller every day this crisis lasts.
The key to continue compounding your investments and build wealth is to keep investing well over time.
Most people think the number one way to do that is to invest in assets that will grow your capital.
And this is a huge part of things.
But another huge part of this is also losing as little capital as possible.
The fewer investment losses you have the more capital you keep. And the more capital you keep the faster you can invest well to grow your wealth.
In recent articles I’ve shown you several stocks to avoid investing in.
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Today, I want to answer… Should You Buy Conagra And Its 3.1% Dividend?
Conagra Brands (CAG) is one of the United States largest packaged food providers.
Some of its most well-known brands are…
- Marie Callender’s
- Healthy Choice
- Slim Jim
- Chef Boyardee
And many more.
Its based in Chicago Illinois. It has a $17.2 billion market cap. And it pays a 3.1% dividend… Which is reason #1 to consider buying its stock.
Conagra’s 3.1% Dividend
Over the last decade Conagra’s paid out a total of $9.27 per share in dividends.
At today’s share count of 489 million shares that’s equal to $4.53 billion paid out to shareholders in that time.
These dividend payments will help you in normal times earn cash if you take the money out. Or allow you to buy more shares over time if you reinvest the dividends.
It can do this because it earns solid profits. Which is reason #2 to buy Conagra to Depression Proof Your Portfolio.
Conagra Earns Large Profits
Over the last decade it earned an average operating income margin of 8.9% per year.
I look for anything above 10%. This falls just below my threshold… But its also not the full story.
In the middle of the last decade its operating profits fell due to lower revenues and rising costs.
Since then, Conagra’s got both under control and its average yearly operating margin since 2016 is 11.6%. Or above what I look for.
Another way to show this is with its free cash flow to sales ratio (FCF/Sales). Over the last decade its 7.9% per year on average.
Which is already above my threshold.
But since 2016 it grew to an average of 9.8% every year over those 5 years.
I call this the “Cash Machine” metric.
I look for anything above 5% on a consistent basis for the same reasons as I look for high operating profit margins above. If a company surpasses both thresholds it makes it a great operating business that is safe and valuable.
And Conagra surpasses one while missing the mark on the other…
These large profits also allow it to have reasonable debt which is reason #3 to buy its stock.
Conagra Has Reasonable Debt
As of this writing Lennar has $0.44 billion in cash compared to $9.62 billion in debt.
As a percentage of its balance sheet, total liabilities make up 63.6%.
Its debt makes up only 55.9% of its current market cap.
And its debt-to-equity ratio is 1.10.
While slightly more elevated than I would like, this debt is still not enough to scare me away from potentially investing in Conagra due to its large profits.
So far Conagra looks like a good potential investment… But what about its valuation? Is it cheap?
Conagra IS Sort Of Cheap
With the markets at or near all-time highs you’d expect a good stock like Conagra to be selling at an enormous valuation.
But its not…
As of this writing its P/E is 17.6.
Its P/CF is 9.1.
Its forward P/E is 14.9.
And its enterprise value to operating income – EV/EBIT is 15.6.
On all three metrics at the top, I look to buy investments below 20 to consider them undervalued.
And on EV/EBIT I look to buy stocks below 8.
This means, Conagra is undervalued when using the top 3 metrics… But overvalued when using the last metric. And this is due to its slightly elevated debt levels.
Which means owning its stock gives you a small margin of safety in investing terminology.
When you invest in stocks that have a margin of safety it makes the investment safer. And it also means you should expect to earn higher returns owning it in the coming years.
The inverse of this is also true…
When you invest in a stock without a margin of safety it makes the investment riskier. And it also means you should expect to earn less owning its stock going forward.
With Conagra being on the cusp of undervalued it makes the investment riskier because it doesn’t offer you enough margin of safety… Especially when considering all the craziness going on today. Even with the other things above.
And for this reason, I recommend you avoid it for now.
If you’re looking for a solid, safe, stable, and enormously profitable investment to buy to Depression Proof Your Portfolio – consider investing in Conagra… But only when it has lower debt levels.
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Disclosure – Jason Rivera is a 13+ year veteran value investor who now spends much of his time helping other investors earn higher than average investment returns safely. He does not have any holdings in any securities mentioned above and the article expresses his own opinions. He has no business relationship with any company mentioned above.