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B&G Meals (NYSE: BGS) is an organization it’s possible you’ll not know, however you’re doubtless aware of a few of its greater than 50 manufacturers, together with Crisco, Ortega, and Inexperienced Large.
Revenue buyers could have seen B&G come throughout their radar because of the inventory’s sky-high 17% dividend yield.
However is that dividend as dependable as a bowl of the corporate’s Cream of Wheat scorching cereal?
We’ll dig into the numbers in only a minute, however first, a phrase of warning: Anytime you see a dividend yield that prime, your guard needs to be up. It doesn’t mechanically imply that the dividend is unsafe or that the inventory is a canine, however the danger of each is actually elevated.
One cause B&G Meals’ yield is so excessive is that the inventory has been a catastrophe. It’s been nearly lower in half previously 12 months and is down greater than 80% over the previous 5 years.
A part of the issue is that money circulation has been very inconsistent.
Final 12 months, it slid 54% from $222 million to $103 million. This 12 months, it’s forecast to drop one other 10% to $93 million.
The Security Internet mannequin penalizes shares for declining free money circulation. The reasoning may be very easy: You need to see money circulation progress with a view to increase your confidence that the corporate will be capable to afford its dividend sooner or later.
The excellent news is that B&G’s payout ratio is low sufficient to not set off any alarms.
Final 12 months, the corporate paid out 58% of its money circulation in dividends. This 12 months, that quantity is forecast to stay the identical.
In late 2022, B&G Meals slashed its quarterly dividend from $0.475 to the present $0.19. As soon as a administration crew has proven a willingness to chop the dividend, the payout is now not sacrosanct, and buyers needs to be on guard that it may occur once more.
The saving grace for the corporate’s dividend security score is that the payout ratio is cheap. But when money circulation continues to deteriorate, it may change into an issue.
B&G Meals’ dividend has a excessive danger of being lower.
Dividend Security Ranking: D
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