B&G Foods- Sells pickels, buys brands, pays dividends

B&G Foods (BGS) is best know for B&G pickles, but their stable of brands also includes B&M baked beans, Ortega, Cream of Wheat, plus about a dozen more. Several of their brands are so-called "orphaned" brands which were acquired from larger companies. Their most recent acquisition was Cream of Wheat from Kraft Foods for $200 million cash.

The stock yields a curiously large 6.5% dividend based on today's price. While an abnormally large dividend is sometimes cause for concern, in this case it seems to be the result of previously issued enhanced income securities (EIS). In 2004, the company sold EIS units which were part bond and part common stock. These units were intended to pay out most of the company's spare cash as interest and dividends. The EIS units still trade under the symbol BGF. The BGS common shares have continued to the pay same dividend yield historically paid for the stock component of the BGF units.

B&G has been able to attain better than average growth rates. Part of the reason for this has been the additional revenue generated by acquisitions. However even without acquisition related revenues the company has still been growing at 3% to 6% as they breathe new life into old brands. B&G also has attained better than average margins. Many of their products are considered "premium" or hold number one or number two positions in their respective segments.

The company is run by a long standing management team, who have proven experience with purchasing and resuscitating orphaned brands. There have also been a recent bout of insider purchases.

On the down side, the company does have a very large debt burden as a result of the two most recent brand acquisitions. Long term debt is over $500 million. The company does generate sufficient operating cash flow to cover the interest plus the current dividend, but not by a wide margin. This may inhibit their ability to acquire new brands if the opportunity arises.

On the balance, I think the company presents a good buying opportunity. If not the stock, then at least the pickles.

Disclosure: I am long BGS