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General Mills Inc. (GIS) is a high-quality blue chip dividend growth stock with an impressive track record of consistent earnings growth over a prolonged period. The company has been providing dividends consistently for the last 113 years. The company has been growing its dividend regularly and the new annualized dividend rate of $1.32 represents an attractive dividend yield of 3.4% at current stock prices. Though its main competitor Kellogg Company (K) also offers a similar dividend yield, it comes at a higher price (valuation). Its other direct competitors like Seneca Foods Corp. (SENEA) and Danone (OTCQX:DANOY) do not provide any dividend at all.

Moreover, the company has been busy on the acquisition front. On top of Yoplait International (purchased last July), the company has completed/announced several strategic acquisitions including reacquisition of the Yoplait license in Canada and Ireland, Brazilian snacks & convenient meals manufacturer Yoki Alimentos and a small Indian convenient meals business, Parampara Foods.

Despite battling sales declines in Yoplait yogurt, the company posted better than expected fourth quarter results. However, the stock appreciation was limited given a weak FY13 guidance. We believe the company has ample growth drivers to drive good long term results. Expected recovery in Yogurt Business, robust growth opportunity in China and impressive acquisitions makes us bullish on this stock.

US Yogurt Business to Resume Growth

Following a -5% sales decline in Yoplait business in FY12, the company's success or failure in FY13 will be largely determined by its ability to turnaround this struggling business in the U.S. The management seems optimistic that its US yogurt portfolio will resume growth in FY13 and is targeting all segments of the yogurt market with 35 new product launches in the first half of the year. Partnerships to set off the new flavors include a mutual agreement with the popular diet program company Weight Watchers International (WTW). There are further incremental positives like the sharpened pricing strategy to restore competitiveness following a year in which competitors did not follow its lead on pricing.

Robust Growth Opportunity in China

The company's China business is expanding at a healthy rate of 19% CAGR. Moreover, even despite a slowing growth in China, the company's sales trends are holding up well.

Growth is being driven by expansion into new cities and locally tailored new product innovation, which will be supported by the opening of a new R&D facility in Shanghai during FY13. Thus, we are optimistic that the company will achieve its targeted goal of $900 million in sales by FY15 (currently China Business generates $550 million of sales). Any possible additions to its new product line-up (yogurt for instance) would provide a topline upside over this forecast.

Faster Growth with Yoki acquisition

On 1st August, the company announced the completion of its acquisition of Yoki Alimentos SA. The momentum in the business appears strong as Yoki's sales in key categories are all showing double-digit growth. Currently, the company's Brazil business is limited with less than $100 million in retail sales and the acquisition gives General Mills immediate scale in one of the region's fastest-growing emerging markets and access to Brazil's rapidly growing $8-10 billion snack, soup and sauce market. While the acquisition will be $0.02-$0.03 dilutive to FY13 EPS, the deal is expected to be neutral on a cash basis, including the impact of transaction and financing costs. Yoki will be accretive to EPS growth in FY14 and beyond.

The Yoki acquisition offers category synergies, access to more affordable mid-level price points, and a national distribution network in Brazil. Further, General Mills' strong cash flow generation and proven management discipline should support smooth integration and growth of these newly added businesses. Despite recent fundamental challenges and modest FY13 guidance, we believe General Mills is taking the right steps to fix its business. At current levels, risk/reward profile looks attractive and we recommend buying it.

Source: This High Quality Dividend Stock Offers A Good Upside Potential