Mad Money

Investors Pickle 2: Finding the Right Play on B&G Foods


Cramer likes to keep things as simple as possible on Mad Money. That’s why he usually recommends a company’s common stock and avoids puts, calls, short selling and other SEC-approved ways to make money. But every once in awhile he’ll venture out, so to speak, such as when he suggested Ford’s preferred shares over the common.

Cramer's Food for Thought

Well, he told viewers during Tuesday’s show that he thought he’d found another interesting way to make money: B&G Foods’ Enhanced Income Security. It’s a hybrid of the company’s common stock and a bond, and it offers an even bigger payout than B&G’s 8.1% dividend yield.

B&G Foods buys forgotten brands from companies like Kraft and Nestle and turns them around. Some of their more notable success stories are Ortega, Cream of Wheat, Emeril Lagasse’s sauces and seasonings and, of course, B&G pickles. While the company took a hit last year as the economy teetered, the management’s most recent statements seemed to indicate a good third quarter was on the way. So how do you play the stock?

Just to be clear, B&G Foods trades under BGS, while the Enhanced Income Security trades under BGF. One unit of BGF is equal to one share of class A common stock, meaning one share of BGS, and $7.15 in principal of B&G’s 12% senior notes due in 2016. So investors get the common stock’s 8.1% yield and 12% from the bond. Combined the payout is worth 9.7%, which, again, is bigger than the common yield alone. And the BGF historically has outperformed BGS.

The problem? A couple of things, actually. B&G Foods cut the common-stock dividend last year by 20% in response to that depression/recession that rocked the economy. Also, the BGF might not last longer than Oct. 30, which is when the company can redeem the 12% senior notes for just a 6% premium. That would leave BGF holders with 106% of the debt’s value and the common stock.

Cramer had some concerns about both plays on B&G Foods, so he invited CEO David Wenner onto Mad Money. Which is the better buy? Watch the video to find out.

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