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The board of B&G Foods, Inc. (NYSE:BGS) has announced that it will pay a dividend of US$0.47 per share on the 1st of November. This means the annual payment is 6.5% of the current stock price, which is above the average for the industry.
B&G Foods' Dividend Is Well Covered By Earnings
If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, the company was paying out 111% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 57%. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.
Earnings per share is forecast to rise by 25.3% over the next year. If recent patterns in the dividend continues, the payout ratio in 12 months could be 93% which is a bit high but can definitely be sustainable.
B&G Foods Has A Solid Track Record
The company has a sustained record of paying dividends with very little fluctuation. The dividend has gone from US$0.68 in 2011 to the most recent annual payment of US$1.90. This works out to be a compound annual growth rate (CAGR) of approximately 11% a year over that time. So, dividends have been growing pretty quickly, and even more impressively, they haven't experienced any notable falls during this period.
The Dividend's Growth Prospects Are Limited
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Unfortunately, B&G Foods' earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year. The company is paying out a lot of its profits, even though it is growing those profits pretty slowly. This gives limited room for the company to raise the dividend in the future.
Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. The company is generating plenty of cash, but we still think the dividend is a bit high for comfort. This company is not in the top tier of income providing stocks.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Case in point: We've spotted 2 warning signs for B&G Foods (of which 1 can't be ignored!) you should know about. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.
This article by Simply Wall St is general in nature. 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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