35% Stock Sell-Off: Should You Buy the Dip?

Shares of Conagra Brands (NYSE: CAG) have entered their own bear market, down more than 35% from their 52-week highs. That drop has pushed the dividend yield up to an eye-catching 8.2%. Before you buy the dip, consider a few facts about the company's business.

What does Conagra Brands do?

Conagra is a packaged food company that owns brands including Slim Jim, Healthy Choice, and Duncan Hines. Although many of the brands the company owns are fairly well known, few are true category leaders. That's not a terrible thing, given that PepsiCo (NASDAQ: PEP) isn't the leading cola brand and is still a highly profitable company. However, Conagra isn't hitting on all cylinders right now.

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In the fiscal second quarter of 2026, the company's overall sales declined 6.8%, while organic sales were down 3%. That's particularly bad, noting that the consumer staples sector as a whole is struggling right now with consumer belt tightening and a shift toward healthier fare. Adding to the negatives in the fiscal second quarter was a one-time impairment charge of $0.94 per share, pushing earnings to a loss of $1.39 per share.

Impairment charges are a bad sign. It basically means the company's brands aren't worth what it once believed they were. It is classified as a non-cash charge because it is deducted from shareholders' equity. However, that just means that shareholders bore the brunt of Conagra's impairment as it reduced book value per share.

In essence, Conagra's impairment, coupled with its weak results, is a sign that the company's overall business isn't among the best positioned in the consumer staples sector. And it may never be, given its brand portfolio.

How much risk are you willing to take on?

It is highly unlikely that Conagra will go bankrupt. It will almost assuredly survive this weak patch. However, it is less clear if the dividend will make it through this period. The $0.35 per share quarterly dividend was more than covered by adjusted earnings in the fiscal second quarter of 2026. However, the dividend payout ratio has spent a worrying amount of time over 100% in the past year or so.

A dividend payout ratio can remain above 100% for a long time without a dividend cut. However, Conagra's board of directors has reduced the dividend before when the payout ratio spiked as it has recently. The fact that the dividend hasn't been increased in a few years is also a troubling sign, as it indicates that the board is already worried about the sustainability of the quarterly payment.

While a dividend cut appears to be priced into the stock, that doesn't change the hit that a dividend investor would feel. The average yield for a consumer staples stock is 2.8%, so a 50% or greater reduction in Conagra's dividend would be completely with reason.

There are better risk/reward trade-offs out there

Conagra's yield is extremely high for good reasons. For more aggressive turnaround investors, the stock may be of interest. However, if you need reliable dividends to pay for living expenses, Conagra probably isn't worth the risk. The entire consumer staples sector is under pressure today, suggesting you can likely find better-positioned companies with historically attractive yields.

PepsiCo could be a good starting point, noting that it still managed to grow revenues by 2.6% and organic sales by 1.3% in the third quarter of 2025 despite the industrywide headwinds. The 3.9% dividend yield isn't as high as what Conagra offers, but with over 50 consecutive annual dividend increases, Dividend King PepsiCo's dividend appears to be a lot more reliable on the dividend front.

Reuben Gregg Brewer has positions in PepsiCo. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.