The Campbell's Company (NYSE: CPB) has reset its dividend, and the move gives investors a cleaner way to judge the stock: the payout is now more sustainable, but the turnaround still has to deliver. While investors hoped for the best, thinking the brand and balance-sheet strength could sustain the payout until turnaround efforts took hold, cash flow didn’t cover the payment, and debt ballooned. This is reflected in the price action: CPB shares shed 60% in the preceding quarters as the market priced in the risk, if not the reality.
Campbell’s new dividend is lower, but it is also easier to defend. The 25-cent quarterly payout gives the stock a forward yield of about 4.7% at recent prices, which remains attractive for a consumer staples name. Shares also trade at a modest forward earnings multiple, suggesting much of the bad news may already be reflected. More importantly, the reset brings the payout back to a more manageable level, giving Campbell’s more room to absorb weakness, reduce debt and fund its turnaround.
