Saturday, March 15, 2014

General Mills Delivers a Consistent Dividend Raise to Shareholders

General Mills, Inc. (GIS) produces and markets branded consumer foods in the United States and internationally. Over the past week, the Board of Directors approved an 8% increase in the quarterly dividend to 41 cents/share. This marked the 11 consecutive annual dividend increase for this dividend achiever. Check my analysis of General Mills (GIS).

Chairman and CEO Ken Powell said, "General Mills and its predecessor firm have paid dividends without interruption or reduction for 115 years. This track record is testimony to the strong and steady operating cash flows generated by our consumer food brands. We expect dividends to grow with earnings over time, and we see this dividend growth as a key component of our long-term shareholder return model."

I generally view dividend increases as indication by management that they expect positive developments in the business in the coming year or two. This is because management only commits to an increased dividend payment amount, if their conservative estimates show business will pick up in the foreseeable future. If the business is unable to deliver the expected growth, and management has to cut the dividend, many share-owners would be unhappy. In contrast, share buybacks can be announced but not fulfilled if projects do not turn as expected. Therefore it is quite surprising that share buybacks are viewed by many on Wall Street as a superior to dividends as a way to return cash to shareholders.

General Mills has managed to pay dividends without cutting them for 115 years in a row, which is impressive. General Mills raised its dividends for 29 years in a row through 1995. However, after it spun-off Darden Restaurants (DRI) to shareholders, the dividend was frozen. General Mills raised dividends again between 1996 and 1999, but then kept them unchanged until 2004.

Over the past decade, General Mills has managed to increase dividends by 9.90%/year.
The company has managed to increase earnings per share from $1.22 in 2003 to $2.79 in 2013. Analyst estimates call for an increase to $2.88 in 2014 and $3.10 in 2015.

The stock fell on Friday, because it missed quarterly forecasts. However, I generally consider quarterly misses to be more of short-term noise than anything else. If the company is unable to grow earnings per share however in the next two years, it would likely be unable to grow the dividend as well. Therefore, that would be an indication that something has changed and your dollars might be better off somewhere else. Until then, I would not focus too much on quarterly misses or beats. Of course if a company I am watching dips after missing a few cents/share, it could create a decent opportunity to initiate or add to positions on the dip.

Currently, this dividend achiever is attractively priced at 18.50 times earnings and yields 3.30%. I recently added to my position in General Mills, in one of my tax-deferred accounts. I like the strong portfolio of quality brands, the stability of earnings and dividend growth, and the recession resistant type nature of the industry that General Mills operates in. With companies like General Mills, the big money is made by buying a patiently holding for decades, and letting the power of compounding do its work for your wealth accumulation.

Full Disclosure: Long GIS

Relevant Articles:

Four Practical Dividend Ideas for my SEP IRA
General Mills (GIS) Dividend Stock Analysis
Dividend Investors Should Ignore Market Fluctuations
Five Quality Dividend Payers I Bought on the Dip
How to read my weekly dividend increase reports

2 comments:

  1. Dear DGI,

    First of all, I just want to say thank you for your great site -- I really appreciate you sharing all of your knowledge and insights.

    Now please bear with me as I may be asking a stupid question, but here goes. Right now, GIS is yielding 3.30%. In your analysis of GIS last year in June, you estimated that the dividend would double in about 8.5 years. So let's say right now I buy $1000 of GIS. That'd mean it'd yield $33 in 2014. If the estimate holds, sometime in 2022, the yield would be $66, right? So in effect, from the original investment amount, the yield would be 6.6%.

    Like I said, dumb question, but it's something I just realized. There are stocks that pay 6.6% right now, but they neither have the growth potential or the safety of a stock like GIS. So if I want to get 6.6% from a stock, and if I can wait 8.5 years to get that, then the smart thing would be to buy GIS.

    I guess what I'm trying to say is this: you can get your sexy 6.6% yield with GIS -- you just have to wait 8.5 years. Of course, by 2022, the yield will probably still be 3.3%, since the stock would've doubled by then.

    Do I have that right? Again, sorry for the inanity of this question!

    ReplyDelete
  2. There is no such thing as a stupid question. If all goes right, the company will be able to double dividends in approximately 8 - 9 years. Of course, this could also drive capital appreciation potential, plus dividend growth might not be limited to the next 8 - 9 years only, but could continue forward.

    Good luck in your investing journey!

    DGI

    ReplyDelete

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