Monday, June 30, 2014

I purchased this dividend machine last week

In the past week I added to my position in a dividend growth stock I have been following for one year. This dividend achiever has managed to increase dividends for 11 years in a row. What is really surprising is that the company has managed to never cut dividends over the past 115 years, which is amazing.

The company I added to was General Mills (GIS). When I last analyzed the company back in 2013, I concluded that it was a nice stock to accumulate. I have already made a few purchases over the past 12 months, but those are nowhere close to building a substantial position in a short period time. I managed to take advantage of a drop in prices last week, in order to add to my existing position in General Mills. I view the stock as one of the core group of buy and hold forever type companies. Of course, as I have mentioned before however, buy and hold is still buy and monitor. However, if the stock drops further from here and is available in the $45 - $48 range and below, that would be really neat, and I would add to my positions there.

In the past decade, the company has managed to increase dividends by 9.90%/year. Earnings per share increased by 7.40%/year. The company is expected to increase earnings per share to $3.04 in 2015 and $3.24 in 2016. Even if the company manages to increase earnings per share by 7%/year, it would double them every decade. As a result, the intrinsic value of the business should double accordingly. Of course, if you are an investor who buys an asset where earnings increase by 7%/year, and they are also paid a 3% dividend yield, this translates into a total return of roughly 10%/year. The company itself is expecting that its adjusted earnings per share in constant currency will increase at the high single digits, which in my opinion is achievable.

The company was able to raise dividends in March 2014, when the dividend was increased by 8% to 41 cents/share. The company is expecting to grow dividends with earnings over time, and views dividend growth as a key method of providing returns to long-term shareholders. This track record is a real testimony to the strong and steady cash flows which are generated by its portfolios of consumer food brands.

Earnings per share could increase from new product offerings, strategic acquisitions, international expansion and streamlining of operations. A constant focus on operations, eliminating unnecessary costs, improving margins and reducing negative effects of input costs are something that should help the company accomplish its targets. The company is able to expand its distribution network on a global basis, invest in innovation and in its strong brands. Having a portfolio of stable food brands generates recurring excess cash flows. Those excess cash flows are not necessary for expansion of the business. Therefore they result in the ability for the company to shower shareholders with more cash every year through regular dividend payments and increases.

One interesting fact about General Mills is that the company was a dividend champion until 1995, when it spun-off Darden Restaurants (DRI) to shareholders. After that, the company was able to increase dividends between 1996 and 1999, but kept them unchanged between 2000 and 2004. Ever since 2004, dividends per share have been on the increase.

Currently, this dividend achiever is attractively priced at 18.50 times earnings, and a current yield of 3.10%.

Full Fisclosure: Long GIS

Relevant Articles:

General Mills Delivers a Consistent Dividend Raise
General Mills (GIS) Dividend Stock Analysis
Buy and Hold means Buy and Monitor
Companies I am Considering for my Roth IRA
Let dividends do the heavy lifting for your retirement

9 comments:

  1. Haha! I added 50 shares of GIS to my wife's IRA last week. Nice to have you on the same page, DGI.

    ReplyDelete
  2. Dear DGI,

    I have considered General Mills, but opted for Kellogs instead, I consider both companies to be worthy of a position ones portfolio. The move away to other breakfast alternatives is getting some attention in financial news items. Does this concern you?

    Regards
    Louis Gunn

    ReplyDelete
  3. I added some more GIS to my IRA last week also!

    ReplyDelete
  4. Hi all, last week I initiated a position in GIS too.

    Best luck fellow shareholders!

    ReplyDelete
  5. Hi,

    Thank You for stock idea.

    I added this stock to my watchlist, but will not buy it now due to Free Cash Flow Payout above 50%. I will wait for next quarter results to see the trend and then devide.

    ReplyDelete
  6. Hi, been following your blog, great site u got! I bought GIS couple of weeks ago, and like you if it drop most likely will buy some more :)

    ReplyDelete
  7. Bummer. I almost pulled the trigger but wanted the price to drop $1. Oh well. Perhaps it will drop a luttle and i'll get in for my Roth.

    ReplyDelete
  8. I also started an initial position last week. If it drops further I plan to add to my position.

    ReplyDelete
  9. GIS truly is a money machine and you almost can't go wrong with it. I have held it for about 7 years now in my portfolio with no intention of selling it any time soon. In fact, I added to my holdings a few months back. Thanks for sharing.

    ReplyDelete

Questions or comments? You can reach out to me at my website address name at gmail dot com.

Popular Posts