B&G Foods, Inc. Serves Up 6.7% Yield During COVID-19
January 20, 2021
B&G Foods Stock Has Paid Out a Dividend Every Quarter Since 2004
Stocks are trading at record territory, meaning it’s difficult to find undervalued stocks with great near- and long-term growth potential. At the same time, rock-bottom interest rates mean investors aren’t making anything off their fixed-income assets.
The Federal Reserve has kept interest rates artificially low since the Great Recession. It has done so to make borrowing cheap, which is supposed to juice the economy. It has been great news for businesses, but not for average American investors who socked money away in the hopes of supplementing their salaries or pensions with passive income.
Even with a $1.0-million nest egg, you’d take home less in interest than you would if you worked at a fast-food restaurant.
Because of the coronavirus and ongoing economic challenges, things are not going to change anytime soon. In fact, Jerome Powell, the chairman of the Federal Reserve, said he has no plans to raise interest rates anytime soon. Some on Wall Street don’t expect interest rates to inch up until at least 2023.
Investors looking for high yields should look at the sectors that have actually done well during the pandemic. One is consumer staples.
While the coronavirus was first reported in China in December 2019, it wasn’t until March 2020 that the rest of the world was forced into partial or full lockdown. That meant most people were, begrudgingly, following stay-at-home orders, and were only allowed to venture out into the sunlight for essential items from pharmacies or grocery stores.
That was positive news for recession-proof consumer staple companies. After all, people still have to eat, color their hair, and clean their homes. If anything, self-quarantining meant they were doing it more than ever. People were isolated, spending less money on discretionary items, and cooking more at home.
One consumer staple company that has done well during the pandemic is B&G Foods, Inc. (NYSE:BGS). You might not recognize the name, but chances are good you’ve been acquainted with their products during the lockdown.
About B&G Foods, Inc.
B&G Foods has more than 50 iconic brands, including: “Green Giant,” “Cinnamon Toast Crunch,” “Skinnygirl,” and “Weber.” You can find the company’s products across the U.S., Canada, and Puerto Rico.
As you can see in the following chart, BGS stock has done well since the stock market crashed in February and March, 2020. B&G Foods stock even rebounded quicker than most. It has traded in a somewhat tight range since the second half of 2020, but it’s up 90% year-over-year.
Chart courtesy of StockCharts.com
While the overall stock market soared in the months following the crash, exuberant investors, afraid of missing out, sent even undeserving stocks higher. A rising tide lifts all boats, after all.
The big gains that BGS stock experienced, however, were justified.
Strong Sales & Earnings Growth
Last November, B&G Foods announced that its third-quarter revenue increased 22% to $495.8 million. The company’s third-quarter net income was up 51%, at $46.8 million, while its diluted earnings per share (EPS) were up 50%, at $0.72. (Source: “B&G Foods Reports Strong Net Sales and Earnings Growth for Third Quarter 2020,” B&G Foods, Inc., November 5, 2020.)
B&G Foods’ adjusted net income increased 37.5% to $47.9 million, or $0.72 per share. Its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) climbed 21.3% to $104.6 million.
The company ended the third quarter with cash and cash equivalents of $56.9 million, up significantly from $11.3 million on December 28, 2019.
Kenneth Romanzi, president and CEO, commented, “During the quarter, B&G Foods continued to benefit from very strong demand for our products as a result of the ongoing COVID-19 pandemic. We expect to see continued strong demand for our products throughout the fourth quarter and into 2021.”
Romanzi also noted that the company closed on its acquisition of the “Crisco” brand during the fourth quarter, and that it was expected to be immediately accretive to its EPS and free cash flow.
65th Consecutive Quarterly Dividend & Annual Yield of 6.7%
In October 2020, B&G Foods, Inc. declared a regular cash dividend of $0.47 per share. As of this writing, that represents a dividend yield of 6.7%.
B&G Foods has a payout ratio of 94.1%, which is a little higher than I would like to see. But the company did say that, for fiscal 2020, it expects to report adjusted EPS in the range of $2.30 to $2.40. This gives it more than enough room to continue to fund its annual dividend of 6.7%.
Still, even companies that are as financially solid as B&G Foods need to be prudent and preserve capital. Between 2010 and 2019, B&G Foods raised its annual dividend every year, from $0.68 to $1.90. But in 2020, it maintained a payout of $0.475 per quarter. (Source: “Dividends,” B&G Foods, Inc., last accessed January 19, 2021.)
On one hand, B&G Foods didn’t raise its dividend in 2020, but on the other hand, it didn’t cut its dividend either. With sales expected to be strong in 2021, I’d be surprised if the company didn’t resume its annual dividend hikes later in 2021.
The Bottom Line on B&G Foods, Inc.
Rock-bottom interest rates have been the death knell for income investors.
Investors who are looking for a source of safe, solid, passive income should consider researching consumer staple stocks like B&G Foods stock.
