General Mills (NYSE:GIS) recently announced that it would increase its dividend payments by 15%. GIS has a very long history of dividend payments, dating back 114 years. In this period, there hasn't been a single dividend cut. The new quarterly dividend will be $0.38, or 0.82%/quarter at the current $46.24 share price.
In this article, I will be investigating GIS's performance over the last couple of years. At several points, I will use Kellogg Company (NYSE:K) and The J.M. Smucker Company (NYSE:SJM) for comparison.
All graphs in this article were made by me, using Microsoft Excel.
Revenue, earnings and costs
General Mills has seen a steady increase in their net sales, which in my opinion is probably a result of their advertising budget increasing by hundreds of millions of dollars (see graph below). In 2008, net sales totaled $13.55 billion. By 2012, this had grown to $16.66 billion, giving it an annual growth rate of 5.3%.
Advertising expenses have increased by 55.6% between 2008 and 2012, growing from $587 million to $913 million. Research and development had a budget of $245 million in 2012, compared to only $205 million in 2008.
Annual earnings growth is at 4.9%, which is very reasonable for a mature company like GIS.
The next graph shows YoY net sales growth for GIS, K and SJM.
We can see here that GIS has made some really impressive increases in their amount of sales, growing at a faster pace than Kellogg. GIS hasn't been able to match the net sales growth SJM has had, which is only normal considering that GIS is a more mature company. GIS has beaten both K and SJM in terms of profit margins, as can be seen in the graph below.
EPS, dividend, and payout ratios.
EPS has risen with an average 6.1% yearly, from $1.85 in 2008 to $2.35 in 2012. The dividend went up from $0.78 to $1.22, giving it a dividend growth rate of 11.8%. Expected EPS for 2013 is $2.68 (+14% compared to 2012), while for 2014, $2.91 (+24% compared to 2012) is forecasted. The table below is from Yahoo Finance.
GIS's payout ratio has been in the low 40% range from 2008 to 2011. The 2012 drop in EPS increased this by a bit (to 51.9%), but not to any level were I'd be concerned, especially considering the expected EPS growth for the next 2013 and 2014.
Valuation and conclusion
At a p/e ratio of 17.1, GIS is slightly above its 10-year average p/e of 16.4. When compared to K and SJM however, GIS looks very cheap.
All in all, with its recent dividend increase, high profit margin and forecasted growth in EPS, I think GIS would be a great stock to own. At a price of 17.1 times earnings, it's a lot lower than the competitors I've used for comparison.
I will be adding GIS to my portfolio in the near future.
I'd love to hear your thoughts on my article, please take the time to comment below!
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in GIS over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.