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The board of B&G Foods, Inc. (NYSE:BGS) has announced that it will pay a dividend on the 1st of August, with investors receiving US$0.47 per share. This means the annual payment is 8.5% of the current stock price, which is above the average for the industry.
Check out our latest analysis for B&G Foods
B&G Foods Is Paying Out More Than It Is Earning
We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Before making this announcement, the company's dividend was much higher than its earnings. Without profits and cash flows increasing, it would be difficult for the company to continue paying the dividend at this level.
Over the next year, EPS is forecast to expand by 56.9%. However, if the dividend continues growing along recent trends, it could start putting pressure on the balance sheet with the payout ratio reaching 135% over the next year.
B&G Foods Has A Solid Track Record
The company has an extended history of paying stable dividends. The dividend has gone from US$0.84 in 2012 to the most recent annual payment of US$1.90. This implies that the company grew its distributions at a yearly rate of about 8.5% over that duration. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.
The Dividend Has Limited Growth Potential
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. However, initial appearances might be deceiving. Over the past five years, it looks as though B&G Foods' EPS has declined at around 11% a year. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in. 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.
The Dividend Could Prove To Be Unreliable
Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. We can't deny that the payments have been very stable, but we are a little bit worried about the very high payout ratio. We would be a touch cautious of relying on this stock primarily for the dividend income.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've identified 6 warning signs for B&G Foods (2 shouldn't be ignored!) 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.
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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.