Breakfast of Champions – and Champion of Dividends
Few companies have touched as many lives as General Mills (GIS).
Beginning with Gold Medal Flour in the 1800s, it has continued to expand and extend its market reach by capitalizing on some of the most recognizable names in the supermarket:
Progresso Soups, Green Giant, Pillsbury, Haagen-Dazs, Betty Crocker, Wheaties, Chex, Yoplait and, of course, Cheerios… just a handful of the 45 brand names General Mills owns.
It also has the honor of being one of the most consistent dividend payers in the market – ever… with a chain of payouts going back an impressive 114 years.
In early March, GIS announced that it was raising its dividend again – from $0.33 to $0.38 a share.
That’s a 15% increase and the 14th time in nine years that General Mills has bumped up its payout.
At current prices, the latest increase brings the annualized yield up to a very investible 3.1%.
It’s just one of several factors that make General Mills a very attractive dividend play right now.
Another is price stability.
Share prices have been consistently stable for decades. In fact, you’d be hard pressed to find a more stable stock in the market.
A stock’s volatility is measured by its beta. If the beta is 1, the stock moves in lockstep with the market. Over 1, and the stock will be more volatile than the general market. Under 1, and the stock will be more stable than the market.
General Mills’ beta? Almost zero. A measly 0.17.
You can’t get any more stable than that.
And share prices have consistently moved up as well – and are likely to go higher still, thanks to some pretty solid numbers for the quarter.
Net income was roughly $0.60 a share, up to $398.4 million, beating most analyst estimates by $0.03.
And net sales rose 7.5% to $4.43 billion.
On the other hand, there are a few rats in the cupboard, gnawing away at the company’s grain…
Manageable Rodents? Or a Growing Plague?
Among the sticking points, the first is fuel costs.
If oil prices continue to rise over the next 12 months, the costs for manufacturing and transporting all those yummy cereals and dinners will go up, as well.
Another is food costs, which are dependent on healthy harvests of grain. Any upset to farm production, from droughts, floods – even locusts – will impact profits.
In addition to that, the country seems to be moving away from traditional breakfast cereals, and towards healthier choices.
And to top it off, the recent acquisition of Yoplait yogurts hasn’t boosted revenue as expected.
General Mills grabbed Yoplait at exactly the same time American consumers were developing a taste for Greek style yogurt, like Chobani, and moving away from traditional names in the yogurt aisle.
To keep its market share up, General Mills has to spend like mad on advertising, shelling out roughly $900 million in 2012, compared to about $250 million in research and development.
All of this has the company expecting a period of slower, but consistent, growth going forward.
But, in the end, I don’t think there’s much to worry about with GIS.
The company has continued to reward investors, no matter what happens in the economy, because its products are familiar and comfortable.
And with a P/E ratio of about 17, shares are relatively cheap, especially compared to a competitor like Kellogg (K), with its P/E of 32.
So if you’re looking for consistent dividends and a decent yield, from a stock that’s going to let you sleep at night, I’d fill up on General Mills…
But there are two things to keep in mind.
The next dividend will not have the announced bump. The regular payout of $0.33 a share will be made on May 1, for shareholders of record on April 10.
The $0.38-a-share dividend will come on August 1, to shareholders of record as of July 10.
The second thing – I’d wait for a reasonable pullback in prices before getting in.
Shares are up more than 20% this year, and the quarterly numbers pushed prices up more than $1.30, to a high of $47.86.
A pullback will happen. So be patient, and wait for your price before loading up.