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B&G Foods, Inc.: How Safe Is The 7% Dividend?

Feb. 08, 2019 12:17 PM ETB&G Foods, Inc. (BGS)23 Comments
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Wealth Insights


  • B&G Foods is a high yielding food stock offering a dividend yield of more than 7%.
  • The company has grown through acquisitions, but this is where the cracks begin to show. The company's fundamentals have declined over time, indicating poorly executed acquisitions.
  • The balance sheet and payout ratio are now stretched - even after paying down debt with proceeds from a large divestiture.
  • We are bearish on the stock, as a dividend cut seems inevitable - despite upbeat discourse by management on the previous earnings call.

B&G Foods, Inc. (NYSE:BGS) is a packaged foods company that is behind many well known brands that end up in your weekly shopping cart. The company pays a large dividend that yields an impressive 7.39% on the current stock price. With a dividend yield that is quite high for its sector, we reviewed the business to find if B&G Foods represents a great income opportunity, or a "yield trap" for investors. Due to a number of red flags that we outline below, we conclude that the dividend is not sustainable at current levels. We anticipate a dividend cut in the near future.

We certainly understand why B&G Foods' dividend may be grabbing the attention of investors. A company with a portfolio of well known brands and a high yielding dividend wouldn't alarm anyone at first. Food stocks are typically very stable businesses that produce steady streams of cash flow.

source: Ycharts

This rings true with B&G Foods, whose revenue and earnings have trended higher over the past 10 years with no real volatility in the business' performance.

The cracks within B&G Foods begin to show when you take a closer look at the company's management style over the years. Rather than grow organically, B&G Foods has utilized a growth through bolt-on acquisition strategy. For years, B&G Foods has purchased assets - a whopping 29 brands have been purchased over the past 10 years alone. The timeline of acquisitions can be seen here.

There are various companies that utilize acquisitions to drive growth, so this in itself isn't the issue the company faces. The issue, is that poor execution of an acquisition strategy can damage a business over time. B&G Foods has simply not been very good at executing.

Whether management has acquired the wrong assets, paid the wrong price to acquire

This article was written by

Wealth Insights profile picture
I provide straight forward insights on stocks and markets using fundamental analysis and common sense. - Bachelor's degree in Business Administration with a concentration in Financial Analysis. Been investing and following the markets for more than a decade.- Wealth Insights is an investor, and investment author. His content is not geared to anyone's specific investment goals, time horizons, or risk tolerance. Content is for illustrative purposes only, and is not intended to displace advice from a fee based financial adviser. It is not to be taken as investment advice, or influence investor decision making. Accuracy of data is not guaranteed.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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