Is B&G Foods Still a Good Buy?

| About: B&G Foods, (BGS)

In my recent article on stocks with attractive yields, I recommended B&G Foods (NYSE:BGS) as a good dividend-paying stock. In the intervening week, the price has risen more than 15% and the dividend yield has declined from nearly 5% to just above 4%. Although I still like the company and its management, I wonder if the stock price hasn't risen too far too quickly.

The stock has risen from about $10 per share to more than $20 per share in the past year. Part of this could be attributed to a boost in the dividend from $0.68 to $0.84, part to an earnings report that topped analysts' estimates and part to a recent upgrade to strong buy by Zacks Investment Research on June 15. Regardless of the reasons for the price moves, would B&G still have made my list?

B&G Foods and its subsidiaries manufacture, sell and distribute a diversified portfolio of high-quality, shelf-stable foods across the United States, Canada and Puerto Rico. Its products, including Cream of Wheat cereal, Ortega salsa, Polaner jellies and B&M baked beans, compete for supermarket shelf space with other food product giants.

A quick look at the company's 10Q filed on April 26 shows nearly $100 million in cash, more than enough to cover its $10 million of quarterly dividend payments and the interest on its debt for the next year. The company generated about $13 million in net income last quarter and has no long-term debt maturing before 2013.

All of these positives indicate the dividend is secure, and management's statement in the 10Q on dividend policy reiterates its commitment to a strong dividend policy:

Our dividend policy reflects a basic judgment that our stockholders would be better served if we distributed a substantial portion of our cash available to pay dividends to them instead of retaining it in our business. Under this policy, a substantial portion of the cash generated by our company in excess of operating needs, interest and principal payments on indebtedness, capital expenditures sufficient to maintain our properties and other assets is in general distributed as regular quarterly cash dividends (up to the intended dividend rate as determined by our board of directors) to the holders of our common stock and not retained by us.

So, although the dividend is currently a solid 4%, the rise in share price has made the yield somewhat less attractive. If I were constructing my list today, there is a good chance it would not have been included. However, I also wrote about using covered calls as a way of enhancing yield, and BGS is an excellent candidate for this strategy. With the stock closing at $20.39 on June 21, selling the $20 February 2012 in the money calls for about $1.70 will provide some downside protection on the share price and could provide a much more attractive return. And for those unwilling to engage in a call writing strategy, it is probably more advantageous to wait for a pullback in the share price.

Disclosure: I am long BGS.

Additional disclosure: I may purchase shares of BGS or write covered calls against BGS at any time.