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  1. Home
  2. / Investing
  3. / Stocks

B&G Foods Piques My Interest but Has Yet to Whet My Appetite Enough to Buy

The company behind a diverse roster of shelf and frozen foods sports a big dividend, but that payout may not last because of its large debt.
By JONATHAN HELLER
May 12, 2021 | 10:30 AM EDT
Stocks quotes in this article: BGS, SJM, SNY

Former 2020 Tax Loss Selling Recovery Portfolio member B&G Foods (BGS) , which was a solid contributor (up 72%) to that annual group of potential turnaround candidates, reported first-quarter results Tuesday. B&G Foods missed on both earnings per share (52 cents versus a 56-cent consensus) and revenue ($505 million versus a $526 million consensus). Punishment for that earnings miss, a 1.6% hit to B&G shares, was fairly mild given the overall down day for markets.

But there are a couple reason BGS is back on my radar, and one of them is not the dividend (more on that later). B&G Foods is a mini who's who of brands, which include Crisco (purchased from J.M. Smucker (SJM) last October for $550 million), Cream of Wheat, Green Giant, Ortega, B&M, Durkee, Polaner, Underwood and a whole host of others you may or may not have heard of or used. To a degree, I've been a fan of the brand collector; it's a strategy that can bear fruit if you don't pay too much for those acquisitions. Years ago, Chattem Corp., which was acquired by Sanofi (SNY) in 2009, was a master at this, buying brands on the cheap.

B&G Foods does carry ample long-term debt ($2.33 billion as of the quarter's end on April 3), which in my view is not a positive and could limit future brand acquisitions. However, that debt may be helping to fuel one of the other reasons that BGS could be interesting, which is a short interest of around 25%. That level of short interest could set up BGS for a short squeeze at some point -- that is, if the shorts are wrong. I'm not yet convinced they are.

As for the dividend, on the surface it is rather ample at 47.5 cents per quarter, which equates to a hefty 6.64% yield. (In 2020, about $1.42 of the total $1.90 dividend was taxable, while about 48 cents was actually a return of capital). However, whether the dividend has room to grow or is sustainable at that level remains to be seen. While the company has stated that it has no plans to cut the dividend, you can't do it all -- pay large dividends, have considerable debt and continue to buy brands.

BGS may appear attractive based on forward earnings; it currently trades at about 12x and 11.5x 2022 and 2023 consensus estimates, respectively. However, given the level of debt, that may not be as attractive as it appears.

B&G Foods is back on my radar, but I am not a buyer at these levels.

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At the time of publication, Heller had no positions in the stocks mentoned.

TAGS: Earnings | Fundamental Analysis | Investing | Stocks | Value Investing | Consumer | Food & Staples Retail | Consumer Staples | Real Money

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