B&G Foods, Inc. (NYSE:BGS) is reducing its dividend from last year’s comparable payment to $0.19 on the 1st of May. The dividend yield of 4.9% is still a nice boost to shareholder returns, despite the cut.
Check out our latest analysis for B&G Foods
B&G Foods Is Paying Out More Than It Is Earning
Impressive dividend yields are good, but this doesn’t matter much if the payments can’t be sustained. B&G Foods isn’t generating any profits, and it is paying out a very high proportion of the cash it is earning. These payout levels would generally be quite difficult to keep up.
Over the next year, EPS is forecast to grow rapidly. Assuming the dividend continues along recent trends, we could see the payout ratio reach 169%, which is on the unsustainable side.
The company’s dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2013, the annual payment back then was $1.08, compared to the most recent full-year payment of $0.76. The dividend has shrunk at around 3.5% a year during that period. Generally, we don’t like to see a dividend that has been declining over time as this can degrade shareholders’ returns and indicate that the company may be running into problems.
The Dividend Has Limited Growth Potential
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. B&G Foods’ earnings per share has shrunk at 33% a year over 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. On the bright side, earnings are predicted to gain some ground over the next year, but until this turns into a pattern we wouldn’t be feeling too comfortable.
We’re Not Big Fans Of B&G Foods’ Dividend
To sum up, we don’t like when dividends are cut, but in this case the dividend may have been too high to begin with. The company’s earnings aren’t high enough to be making such big distributions, and it isn’t backed up by strong growth or consistency either. The dividend doesn’t inspire confidence that it will provide solid income in the future.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we’ve identified 4 warning signs for B&G Foods (2 are potentially serious!) that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here