Updated on January 17th, 2023 by Quinn Mohammed
High-yield stocks pay out dividends that are significantly in excess of market average dividends. For example, the S&P 500’s current yield is only 1.6%.
High-yield stocks can be very helpful to shore up income after retirement. A $120,000 investment in stocks with an average dividend yield of 5% creates an average of $500 monthly in dividends.
We have created a spreadsheet of stocks (and closely related REITs and MLPs, etc.) with dividend yields of 5% or more…
You can download your free full list of all securities with 5%+ yields (along with important financial metrics such as dividend yield and payout ratio) by clicking on the link below:
In this article, we will analyze the packaged and frozen foods company B&G Foods (BGS).
The stock offers a high dividend yield of 5.5%, even after its recent 60% dividend reduction. The payout previously exceeded all of the company’s earnings, and the dividend reduction was a necessity to right the ship.
Even following this, the stock’s valuation does not provide any margin of safety, according to our estimates.
B&G Foods was created in the late 1990s with the initial purpose of acquiring Bloch & Guggenheimer, who sold pickles, relish, and condiments. Bloch itself was founded in 1889. The common stock we know today under the ticker BGS has traded on the NYSE since 2007. B&G Foods has a market capitalization of $992 million.
Some of the company’s well-known brands include Green Giant, Ortega, Cream of Wheat, Mrs. Dash, and Back to Nature, with over 50 brands in total. The company’s latest major acquisition was Crisco in early December 2020. The company’s product portfolio focuses on shelf-stable, frozen and snack brands.
Source: Annual Report 2021
The company operates in the United States, Canada, and Puerto Rico. While the company possesses some major brands, such as Green Giant, Ortega, and Crisco, many of their brands can be considered second-tier.
On November 9th, 2022, B&G Foods reported Q3 2022 results for the period ending September 30th, 2022. The company recorded net sales of $528 million, a 2.6% increase compared to Q3 2021, driven by price increases and an improved product mix. Adjusted net income equaled $22.3 million or $0.31 per share compared to $36.2 million or $0.55 per share in Q3 2021.
B&G Foods reaffirmed its expectation of $2.10 billion to $2.14 billion in net sales for fiscal 2022. However, adjusted EPS was downgraded yet again to be between $0.90 to $1.00, from prior $1.08 and $1.28 and $1.65 and $1.75 previously.
B&G Foods has spent the last decade acquiring food brands in debt-financed deals, followed by raising product prices and the business scale over time. The COVID-19 pandemic positively impacted the company’s 2020 results. However, in 2021 these positive impacts had already begun fading, and results for 2022 are expected to come in at only half of the prior year’s earnings per share.
We believe B&G Foods will generate around 6.0% earnings-per-share growth per year over the next five years off this low comparison base. Revenue has continued growing, and the share count has remained relatively stable (up 2.5% per year over the last nine years). However, the company has taken on more debt to fund the Crisco acquisition, and the interest expense takes up a massive portion of operating income. According to the company’s latest report, long-term debt is now $2.4 billion. And interest expense has increased by nearly 20% over the prior year’s third-quarter results.
To get its debt under control and reduce the dividend, B&G will be divesting certain brands. The most recent example is the sale of Back to Nature to Barilla America, completed on January 3rd, 2022.
While inflation and supply chain disruptions weigh on operations, the company has responded by increasing prices to recover higher costs. Since many of B&G’s brands can be considered second-tier, they may not have strong pricing power, and volumes may continue to decline, as seen in third-quarter results.
Competitive Advantages & Recession Performance
B&G Foods has no significant competitive advantages in our opinion. The company does not possess a strong moat, has second-tier brands, and may not have the pricing power they expect given the ongoing inflationary challenges.
While the company may not have an advantage over peers, it’s still a defensive consumer staples company and generally delivers stable cash flow.
B&G Foods’ earnings-per-share throughout the Great Recession of 2007-2010 are listed below:
- 2007 earnings-per-share of $0.62
- 2008 earnings-per-share of $0.27 (56% decline)
- 2009 earnings-per-share of $0.61 (126% increase)
- 2010 earnings-per-share of $0.90 (48% increase)
B&G Foods’ earnings-per-share declined significantly in 2008. However, the company went on to about fully recover by 2009, and in 2010, the company had put the recession behind them. B&G’s earnings continued to grow once the recession ended. As a result of the EPS decline in 2008, the company cut the dividend by 20% in 2009.
The nature of the COVID-19 pandemic allowed for significant growth in 2020. However, due to high inflation and increasing interest rates, B&G Foods finds itself in a very difficult spot today, which has led the company to cut its dividend by 60% and divest certain brands. We don’t consider B&G Foods to be a recession-resistant business.
After the company’s 20% dividend cut in 2009, B&G raised the dividend for nine consecutive years into 2019. Following this, the company kept the dividend steady in 2020 and 2021. Finally, starting in 2023, B&G cut the dividend by 60%.
Following the dividend cut, B&G Foods’ forward annual dividend per share stands at $0.76. B&G has a high yield of 5.5% at the current share price.
According to the corporation’s leadership, B&G is anticipated to generate adjusted EPS between $0.90 and $1.00 in 2022. At the mid-point, the $0.95 EPS will cover the new dividend with a payout ratio of 80%.
B&G Foods’ new dividend can be considered secure, though we still find the payout ratio to be elevated. The company has a history of paying out unsustainable dividends. In fact, in the last decade, the company could not cover their dividend for four out of ten years, which has resulted in their current position.
We don’t anticipate any increases to the dividend, but if the company can successfully grow EPS by 6% annually by 2027, the dividend payout ratio could be reduced to 60%.
B&G Foods is a stable company with solid revenues, but the majority of its brands are not top tier, which may affect the pricing power of its products. At a time when the business and consumers are faced with increasing inflation, this may result in further reduced volumes.
The company’s dividend payout ratio appears elevated after a significant dividend cut. The payout ratio may moderate if the company can successfully grow its earnings. However, interest expense due to debt-fueled acquisitions weighs on earnings now, which is also forcing the company to sell off some of its brands.
Therefore, B&G Foods would be a risky holding for a dividend growth portfolio at this time.
If you are interested in finding more high-quality dividend growth stocks suitable for long-term investment, the following Sure Dividend databases will be useful:
- The 20 Highest Yielding Dividend Aristocrats
- The Dividend Kings List is even more exclusive than the Dividend Aristocrats. It is comprised of 40 stocks with 50+ years of consecutive dividend increases.
- The 20 Highest Yielding Dividend Kings
- The Dividend Achievers List: a group of stocks with 10+ years of consecutive dividend increases.
- The Dividend Champions List: stocks that have increased their dividends for 25+ consecutive years.
Note: Not all Dividend Champions are Dividend Aristocrats because Dividend Aristocrats have additional requirements like being in The S&P 500.
- The Dividend Contenders List: 10-24 consecutive years of dividend increases.
- The Dividend Challengers List: 5-9 consecutive years of dividend increases.
- The Monthly Dividend Stocks List: contains stocks that pay dividends each month, for 12 payments per year.
- The 20 Highest Yielding Monthly Dividend Stocks
- The High Dividend Stocks List: high dividend stocks are suited for investors that need income now (as opposed to growth later) by listing stocks with 5%+ dividend yields.
The major domestic stock market indices are another solid resource for finding investment ideas. Sure Dividend compiles the following stock market databases and updates them monthly: