ConAgra Foods (NYSE:CAG) has a lot going for it these days. The stock is up more than 11% in the past year, the company has a fast-growing private label business in the works, and international expansion promises future growth for the consumer goods giant. However, finding top dividend stocks for your portfolio means looking beyond the upbeat headlines to focus on key factors such as yield, payout ratio, and capital allocation. Unfortunately, ConAgra Foods doesn't look like a top dividend stock today. Here's why:

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Source: The Motley Fool.

Mounting debt
ConAgra is saddled with long-term debt and a portfolio of under performing brands. This could hamper the company's ability to reinvest cash flows. The food service behemoth had $133 million in cash on its balance sheet in the most recent quarter, compared to more than $8 billion in long-term debt. Moreover, ConAgra is one of the most highly leveraged companies in the food products industry today. The company's profitability has also slipped recently.

ConAgra's consumer packaged goods segment has been particularly worrisome lately. Sales declined for its consumer foods business last quarter, which includes Chef Boyardee and Healthy Choice products. The company blamed weak volumes for the shortcoming. "We are disappointed with fiscal 2014 overall, and we have a very focused sense of urgency directed toward improving our results," said Gary Rodkin, ConAgra Foods chief executive.

Down the road, this declining profitability could impede ConAgra's ability to pay a dividend.

Unsustainable dividends
ConAgra paid out more in dividends over the past year than it earned. Over time, this will prove unsustainable. There is also the issue of payout ratio. The stock has a dividend payout ratio north of 94%, which means a whopping 94% of ConAgra's net income is used to pay out dividends to shareholders. Therefore, for every dollar in net income ConAgra generates, 94% is being paid out as a dividend.

CAG Chart

CAG data by YCharts

That's a lot of cash that could otherwise be reinvested into the company. With ConAgra's sales volume declining at an increasingly rapid pace, perhaps a better use of capital would be to invest in product development and research and development efforts.

Valuation
ConAgra has one of the highest price to earnings growth ratios in the consumer foods industry today, with a PEG value of 7. This makes the stock look wildly overvalued. Put another way, a PEG ratio around one is considered fairly valued, while anything below one typically signals an undervalued stock. The food giant's P/E of 48 also indicates the stock is a bit pricey at its current level. For comparison, ConAgra's rival Kraft Foods Group (NASDAQ:KRFT) currently trades at just 12 times earnings.

With ConAgra's stock trading near its 52-week high at around $33 a share, there are much stronger dividend stocks available to investors today. ConAgra's mediocre dividend yield of 3% may seem reasonable at first glance. However, given the company's declining profit margins, rich payout ratio, heavy debt load and pricey valuation, investors would be taking on more risk than reward in owning this dividend stock today.

 

Tamara Rutter has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.