B&G Foods, Inc.'s (NYSE:BGS) investors are due to receive a payment of $0.475 per share on 31st of October. Based on this payment, the dividend yield on the company's stock will be 7.5%, which is an attractive boost to shareholder returns.
B&G Foods Is Paying Out More Than It Is Earning
We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Before making this announcement, the company's dividend was much higher than its earnings. It will be difficult to sustain this level of payout so we wouldn't be confident about this continuing.
The next 12 months is set to see EPS grow by 70.7%. If the dividend continues on its recent course, the payout ratio in 12 months could be 124%, which is a bit high and could start applying pressure to the balance sheet.
B&G Foods Has A Solid Track Record
The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2012, the dividend has gone from $0.92 total annually to $1.90. This implies that the company grew its distributions at a yearly rate of about 7.5% over that duration. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.
Dividend Growth Potential Is Shaky
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Let's not jump to conclusions as things might not be as good as they appear on the surface. B&G Foods' EPS has fallen by approximately 11% per year during the past five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this becomes a long term trend.
The Dividend Could Prove To Be Unreliable
Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. Although they have been consistent in the past, we think the payments are a little high to be sustained. Overall, we don't think this company has the makings of a good income stock.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. To that end, B&G Foods has 5 warning signs (and 2 which shouldn't be ignored) we think you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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