Searching For Rising Dividends: General Mills

Feb.27.12 | About: General Mills, (GIS)

by Mark Bern, CPA CFA

General Mills (NYSE:GIS) makes many of us our breakfast. The company derives 19% of revenue from outside the U.S. But the company makes more than cereal, as its brands also include Betty Crocker, Bisquick, Hamburger Helper, Yoplait, and Progresso.

The company currently pays a dividend of $1.22 per share on shares currently prices at $38.06 (all quotes from near the close on Friday, February 24, 2012) to yield 3.2%. The company has increased the dividend for eight consecutive years. The compound annual rate of increase over the past five years has been 10.9%, and earnings have increased at a rate of 11.4% over the same time frame. That seems remarkable considering the economic environment within which this was accomplished-- the great recession happened right in the middle of that five-year period.

2011 was a difficult year for General Mills as commodity prices inflated input costs. Management expects some relief from this situation in 2012, as grain prices should stabilized. The company also found its yogurt sales under pressure as a result of competition from Greek style yogurts. GIS bought Yoplait to help assuage the pain in this sector. I don't expect 2012 to provide the typical earnings increased that investors are used to from General Mills, thus this could be a volatile year for the stock price. That smells like opportunity because this is still an excellent company that is well managed and has strong, consistent earnings potential for the future.

Let's look at how General Mills scores on the report card relative to the industry averages. I prefer comparing companies to industry peers rather than the broader market because each industry has unique requirements in areas such as debt, labor intensity, marketing, and the like. Thus, comparing to industry averages provides me with what I believe is a better gauge of how well a company is managed.

Ratio / Measure


Industry Ave.

Pass / Fail

Ave. Annual 5-Yr Earnings Growth




Net Profit Margin




Debt to Total Capital




Return on Total Capital




Dividend Yield




Payout Ratio








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The company is currently trading at a fair valuation compared to its historical levels. I don't expect much P/E expansion for GIS, but I do expect some decent long-term appreciation from this quality company. All told, I expect an average of 12% total return from GIS over the next five years. I think investors would do well to be patient and wait for a dip, as GIS has the potential to disappoint investors at some point during the coming year. That would provide a great opportunity to pick up shares at a bargain price.

My goal is not to try to time the market or pick the top or bottom for any individual stock. Rather, I hope to separate the wheat from the chaff, so to speak. I try to bring the best two or three companies in each industry to investors' attention. None of us knows with certainty when the market will correct or head higher, or by how much. I also hope that all investors will complete additional due diligence on each stock considered before adding purchases to their portfolio to ensure that each holding is appropriate and suitable to each individual's needs.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.