B&G: Buy and Grow
Dear Mr. Berko: Please tell me what you can about B&G Foods -- its products, management and financials. I may buy 200 shares for my individual retirement account because my stockbroker insists it will double in price, from $37 to the $70s, by next summer. Even if it doesn't double, I like the stock because it pays a 5.6 percent dividend. Please give me your opinion. -- HL, Wilmington, N.C.
Dear HL: About 11.2 percent of the U.S. population becomes dizzy because the Earth spins counterclockwise on its axis and travels counterclockwise around the sun. However, for some mysterious reason, the Earth's spin and orbit affect 46.3 percent of stockbrokers.
Food is always a good business. But unless B&G's management can design new products such as Frito-Lay lemonade, Colgate frozen dinners, Life Savers soda pop and Stallone high-protein pudding, I haven't the foggiest idea why that nincompoop broker of yours insists that B&G Foods will double in price by next year.
Based in Parsippany, New Jersey, B&G Foods (BGS-$37) is responsible for putting Cream of Wheat, Don Pepino, Durkee, Mrs. Dash and Accent on grocers' shelves. It stocks those shelves with pickles, relish, peppers, olives, capers, giardiniera and sauerkraut. BGS also markets names such as B&M beans, Emeril's, Grandma's molasses, Joan of Arc, Red Devil and Crystal hot sauces, Old London, Green Giant, and Polaner across the country. The company also makes salad dressings, salsas, Ortega taco shells and kits, canned meats, bagel chips, nut clusters, and granola bars. And it sells and distributes household products under the popular Static Guard brand. B&G's products are carried by most grocers, convenience stores, supermarket chains, wholesale clubs, specialty distributors and mass merchants.
In 2017, these products should produce record revenues of $1.65 billion, record earnings of $2.20 a share and a record dividend of $1.86. And you should know that BGS' dividend has increased yearly since 2010, when it was 68 cents. The current dividend yields 5.6 percent, and I'm willing to wager six bits to a road apple that BGS will raise the dividend to between $1.92 and $1.96 next year.
BGS came public in May 2007 at $13, and BlackRock, Vanguard and Fidelity are the largest holders, with 18 million shares on their books. Today BGS has 66 million shares outstanding, a market cap of $2.4 billion, $1.7 billion of long-term debt and 2,600 employees, and it trades at a respectable 21 times earnings. I'd be comfortable owning this stock as a long-term investment. And I'd be even more comfortable if management continued to acquire popular brands and products as it did recently with ACH Food Companies' spices, Victoria Fine Foods and Green Giant, which sells frozen and canned vegetables.
BGS has a wide range of excellent products that appeal to a huge majority of Americans, but the stock won't double by next summer.
CEO Robert Cantwell, interim CFO Amy Chiovari and sales and marketing chief Vanessa Maskal are well-liked by the board and by the people under them. And they're certainly good managers, as revenues have increased each year since 2007, growing fourfold in the past decade. If management can improve its net profit margin to the 11 percent level -- as Citigroup, Value Line and Credit Suisse believe it will -- then BGS could trade between $60 and $70 a share by 2021.
The best way to own BGS is to buy the stock and hold it for 10 years. And that's easy to do if you own a stock yielding 5.6 percent with a history of annually increasing dividends. If you had invested $10,000 in BGS in August 2007 (743 shares at $13.46) and reinvested all the dividends, you'd have 1,303 shares at $37 today, or $48,211. That's a total return of 335 percent and an average annual total return of 16 percent, and each share would have reinvested $11.17 in dividends. That ain't chopped liver and certainly demonstrates the power of long-term investing and a dividend reinvestment plan.
Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at email@example.com. To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.