For dividend-hungry investors, Conagra Brands' 10% yield looks enticing. But trimming the payout may be a key part of the new CEO's turnaround plan.
Conagra is known for grocery-aisle staples like Slim Jim, Reddi-wip, and Marie Callender's. It also has the highest dividend yield in the S&P 500 -- although not for long. The stock, which has seen its share price tumble more than 50% over the past three years, is set to be relegated to the S&P SmallCap 600 at the end of the month.
It's not the only big change at Conagra. The company named former J.M. Smucker executive John Brase as CEO in April, succeeding Sean Connolly. Given Conagra's struggles -- including inflation, changing consumer behavior and a large load of debt -- many investors expect slashing the payout to be one of Brase's early moves.
Following a recent meeting with Brase, TD Securities analyst Robert Moskow wrote that "our interpretation is that the board has given him a 'clean slate' to evaluate investment spending, broad portfolio change, and a potential dividend cut to stabilize the business."
Moskow continued: "Our view is that investors probably would feel better if they cut the dividend right away when they provide 4Q earnings on July 15th rather than wait for further evaluation," in the note published earlier this month.
Moskow rates the stock a Hold, with a $14 price target, more or less in line with the current trading price. Among the 21 analysts who cover Conagra, just two are Buy, 14 are Hold, and five are Sell, according to FactSet. The average target price is $13.87, implying little upside.
The company should be able to continue funding its dividend if it chooses to allocate its cash that way. Its dividend payout ratio, the share of quarterly profits that goes toward a company's dividend, was 58% over the past year, according to FactSet, well below the typical danger zone of 80% to 90%. Viewed another way, Conagra generates about $840 million in annual free cash flow, while paying out $670 million to shareholders -- a smaller but still comfortable cushion.
The problem is Conagra has yet to convince Wall Street it's found a way to return to profitable growth, while its options are limited by a hefty amount of corporate debt. Wall Street analysts forecast Conagra profits to decline more than 7% for the year ended May 2027.
Conagra faces the same headwinds as other consumer staples companies, such as rising commodity prices and reduced demand as GLP-1 weight-loss drugs reshape consumer eating habits. Meanwhile, many of its brands, which can be viewed as classics -- but also Mad Men-era holdovers -- have had trouble winning younger fans.
"Frozen food, including vegetables and ready meals, is Conagra's single most important product category," wrote Morningstar analyst Kristoffer Inton in December. "Frozen vegetables compete against both shelf-stable and fresh alternatives, with the latter benefiting from consumer trends toward fresher food," he added.
Even before the recent CEO change Conagra was taking steps to right the ship. It offloaded its iconic Chef Boyardee brand in June 2025 for $600 million. It also recently sold the frozen seafood brands Van de Kamp's and Mrs. Paul's for $55 million. Meanwhile, it identified high-protein frozen foods such as edamame and its Marie Callender's Chicken Parmigiana Bowl as potential areas for growth.
But the company's efforts have been hampered by about $7.3 billion in debt. While that's down from more than $8 billion a year ago, the debt still costs nearly $400 million annually in interest payments -- at a time when the company badly needs to reinvest in its brands. Cutting the dividend would be one obvious way to free up cash.
The recent CEO change may be an ideal time to make the change, according to Deutsche Bank analyst Steve Powers.
"We believe these reset dynamics are broadly consistent with buyside expectations, considering...a current dividend yield of >10% with near-term investor discussions recently centering more on the magnitude of a likely rebase (and what form it may take), rather than whether one occurs," he wrote earlier this month.
Powers rates the stock a Hold with a $12 price target, roughly 14% below where the shares currently trade.
Write to Ian Salisbury at ian.salisbury@barrons.com
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June 28, 2026 01:00 ET (05:00 GMT)
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