Summary
- B&G Foods, Inc. has a 7.7% dividend yield, which is far greater than the S&P 500 average. The company has increased dividends for 8 straight years.
- The company acquires smaller and neglected brands and then increases prices to raise profitability. B&G Foods has bought 29 brands since 1997.
- But the company is highly leveraged and total debt and interest expenses are high relative to the company's size.
- The dividend is not well covered in terms of FCF and the payout ratio is over 100% suggesting that the dividend is not sustainable.
- The company is fairly valued to slightly overvalued, suggesting that there is little upside at the current stock price.
Overview and Thesis
In this article I discuss B&G Foods, Inc. (BGS), which owns a large number of consumer staples brands. The company is very acquisitive and has added 29 brands since 1997, leading to increasing revenue and earnings. In addition, the dividend has more than doubled since the last recession and the yield is attractive at roughly 7.7%. However, the large number of acquisitions has saddled the company with relatively high debt in period of rising interest rates. Although the company has positive FCF, the combination of leverage and a high payout ratio makes the dividend risky. I outline below why I think that B&G Foods is fairly valued and small investors focusing on dividend growth or income may not want to buy this stock as the dividend may be cut.
