The Surprising Reason Why Conagra Brands Is Up Since Cutting Its Dividend in Half
Here's why Wall Street believes a smaller payout could be the first step toward a stronger turnaround.
Overview
Cutting a dividend is supposed to be a death sentence for an income stock. Investors buy companies like this for the check, so slashing it should send shareholders running.
Yet since Conagra Brands (NYSE: CAG) announced on July 15 that it was halving its payout, the stock has done the opposite of collapse. It is up roughly 4% since the cut, and briefly climbed close to double digits in the days that followed. That reaction says a lot about what the market actually wanted from this company.
Details
Here is the part that surprises people: Before the cut, Conagra Brands was yielding around 10%. For a slow-growing packaged-food company, a yield that high is not a gift. It is the market's way of screaming that the dividend is not safe. When a payout climbs to double digits, it usually means investors have already decided a cut is coming and have sold the stock down in anticipation. The dividend looks generous only because the share price has fallen so far.
Source
Originally published at www.fool.com.
Related Articles
- How parents can keep saving for retirement during the expensive childcare years
- Changing how Medicare pays for hospice care could save the U.S. $7.6 billion a year — but at what cost to patients?
- Taxes are on the ballot this fall as Republicans and Democrats grow further apart on whether to raise them