Consumer staples stocks are often considered boring and slow, with many offering up reliable and growing dividends. Procter & Gamble (PG 0.68%) is a prime example of this view of the sector. Younger food maker B&G Foods (BGS -0.18%), by comparison, takes a very different approach. It won't be right for everyone, but it could be of interest to those with a more aggressive investment focus. Here's what you need to know.
The tried and true
Procter & Gamble offers investors a dividend yield of roughly 2.5% today. That's not particularly compelling relative to the company's historical yield range, and you could probably find a bank CD paying well north of that. But one thing that P&G offers income-focused investors that would be hard to replicate is a 67-year-long streak of annual dividend increases. That makes the company an elite Dividend King.
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You don't build a record like that by accident. This consumer staples giant has achieved it with a combination of scale and innovation. Basically, P&G wants consumers to seek out its brands -- which include names like Bounty, Pampers, and Tide, among others -- because they believe the benefits are worth the added cost of buying premium products. "New" and "improved" are two words that are important to retailers because they bring customers into stores, and P&G is focused on offering consumers, well, new and improved products.
The business has waxed and waned over the years, just like any company's performance does. However, the long-term trend has been P&G getting bigger and better over time. If you are looking for a reliable and fairly conservative dividend stock, P&G should be on your wish list, if not your buy list (value-conscious investors will probably prefer waiting for a good drawdown, as indicated by a dividend yield in the 3%-plus space, before jumping aboard).
Smaller, riskier, higher yielding
B&G Foods is a much younger company, but offers a yield of roughly 5% today. More aggressive investors might find this food maker compelling, but there are some risks that you need to understand. The clearest was on display in late 2022, when the board cut the dividend. The reason was basically because rising interest rates left the highly leveraged company unable to cover its interest costs (which increased nearly 17% in 2022).
Leverage is kind of built into its business model because B&G buys upstart brands and brands cast off by the industry's biggest players.
What's interesting here is that B&G Foods acts as something of a partner to the larger consumer staples names. As portfolios shift and change over time, brands fall out of favor and start to receive less funding. B&G buys those brands and then invests in them. Or it buys smaller brands that it may end up selling to larger companies once the small brand has achieved greater scale.
The company does a pretty decent job on both fronts. The dividend cut was about having too much leverage, not a problem with B&G's ability to successfully manage brands.
Investors that are conservative by nature should probably look elsewhere. But for those with a contrarian streak, B&G Foods might be a stock that sounds very interesting. Some of its biggest success stories are actually iconic brands -- like Crisco, Cream of Wheat, and Ortega -- though the list of what it owns is much longer.
While earnings were fairly ugly in 2022, sales actually increased 5.2%. The roughly flat revenue guidance for 2023, meanwhile, is impacted by the sale of a brand that wasn't performing up to expectations. So the outlook probably isn't as grim as it at first seems. The dividend cut, meanwhile, should give management more leeway to pay down debt and invest in its portfolio.
This is no slam-dunk investment, but if you like the idea of finding hidden gems, well, that's what B&G Foods is focused on, too.
Who wins?
P&G is something of a set-it-and-forget-it kind of investment. It is a good option for risk-averse investors, though it looks like the stock is fully priced today given the price-to-earnings multiple of 26 is a bit above the median of 25 over the past five years. B&G Foods' stock is down around 45% over the past year, but now that the dividend has been cut, the outlook seems a lot less cloudy. And that might interest more aggressive and contrarian investors.
