Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see B&G Foods, Inc. (NYSE:BGS) is about to trade ex-dividend in the next 4 days. You will need to purchase shares before the 29th of September to receive the dividend, which will be paid on the 30th of October.
B&G Foods's next dividend payment will be US$0.47 per share. Last year, in total, the company distributed US$1.90 to shareholders. Last year's total dividend payments show that B&G Foods has a trailing yield of 7.0% on the current share price of $27.12. If you buy this business for its dividend, you should have an idea of whether B&G Foods's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Last year, B&G Foods paid out 107% of its income as dividends, which is above a level that we're comfortable with, especially if the company needs to reinvest in its business. A useful secondary check can be to evaluate whether B&G Foods generated enough free cash flow to afford its dividend. It paid out more than half (51%) of its free cash flow in the past year, which is within an average range for most companies.
It's good to see that while B&G Foods's dividends were not covered by profits, at least they are affordable from a cash perspective. Still, if the company repeatedly paid a dividend greater than its profits, we'd be concerned. Very few companies are able to sustainably pay dividends larger than their reported earnings.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Fortunately for readers, B&G Foods's earnings per share have been growing at 18% a year for the past five years.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, B&G Foods has lifted its dividend by approximately 11% a year on average. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.
To Sum It Up
Is B&G Foods an attractive dividend stock, or better left on the shelf? B&G Foods has been growing its earnings per share nicely, although judging by the difference between its profit and cashflow payout ratios, the company might have reported some write-offs over the last year. In summary, it's hard to get excited about B&G Foods from a dividend perspective.
If you're not too concerned about B&G Foods's ability to pay dividends, you should still be mindful of some of the other risks that this business faces. For example, we've found 3 warning signs for B&G Foods (2 are a bit concerning!) that deserve your attention before investing in the shares.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
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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