After a Strong Rally, B&G Foods, Inc. Still Offers a 7.1% Yield
This High-Yield Stock Deserves a Look
Generally speaking, income investors don’t like to buy stocks after they’ve shot through the roof. The reason lies in the inverse relationship between dividend yield and stock price. For instance, many solid dividend-paying companies have seen their share prices rally this year. While these companies may offer top-notch dividend safety, the rise in their share prices means their yields are lower than before.
And that’s why B&G Foods, Inc. (NYSE:BGS) deserves special attention at the moment. The company’s stock has had a solid bull run, gaining a whopping 86% year-to-date. And yet, with a quarterly dividend rate of $0.475 per share and a share price of $26.85, BGS stock offers an annual dividend yield of 7.1%.
To put that in perspective, the average dividend yield of S&P 500 companies stands at just 1.6% at the moment. (Source: “S&P 500 Dividend Yield,” multpl.com, last accessed November 26, 2020.)
If you’re familiar with B&G Foods, Inc., it’s quite easy to understand why its shares have gone up so much this year. Headquartered in Parsippany, NJ, the company operates in the packaged food industry.
B&G Foods has a diverse portfolio of shelf-stable and frozen food brands including “B&G,” “Back to Nature,” “Cream of Wheat,” “Mrs. Dash,” “Green Giant,” and “Ortega.” The company’s products are sold across the U.S., Canada, and Puerto Rico.
In ordinary times, B&G Foods’ business is nothing exciting. But with the COVID-19 pandemic and the ensuing lockdowns, people have been stocking up their fridges and pantries. And that has led to strong demand for the company’s products.
Just take a look at B&G’s financials and you’ll see what I mean. In the second quarter of 2020, which was widely regarded as the most difficult operating period for numerous industries, the company’s net sales increased by 38.1% year-over-year to $512.5 billion. (Source: “B&G Foods Reports Strong Net Sales and Earnings Growth for Second Quarter 2020,” B&G Foods, Inc., July 30, 2020.)
The bottom-line result was even more impressive, with the food company’s adjusted diluted earnings per share surging 86.8% year-over-year to $0.71 in the second quarter.
While lockdowns have been lifted in many areas and the economy has been reopening, B&G Foods’ strong performance has carried on. According to the company’s latest earnings report, it generated $495.8 million in net sales in the third quarter of 2020, which marked a 22% increase year-over-year. Adjusted earnings came in at $0.74 per share for the quarter, a 37% increase year-over-year. (Source: “B&G Foods Reports Strong Net Sales and Earnings Growth for Third Quarter 2020,” B&G Foods, Inc., November 5, 2020.)
With effective COVID-19 vaccines being announced recently, consumer behavior will likely resume to normal in the not-so-distant future. So it’s hard to say whether growth in the packaged food industry will continue.
But here’s the thing: B&G Foods has a quarterly dividend rate of $0.475 per share, which is just 67% of its second-quarter adjusted earnings and 64% of its third-quarter adjusted earnings. This creates a margin of safety, implying that, even if the company’s business slows down after the pandemic, there’s a good chance it could still afford its current payout level.
Bottom Line on B&G Foods, Inc.
To summarize, B&G Foods stock has put on a very impressive performance this year.
Although the company’s shares are more expensive than before, they still offer a very attractive yield at the current price. Since the payout is well covered, BGS stock could represent an opportunity for yield-seeking investors.