One of the ways I monitor dividend portfolio holdings includes checking on press releases about earnings, dividend increases and major changes. Once I have made an investment in a company, I like to check whether fundamentals are still solid, and whether earnings and dividends keep increasing.
One of the companies I own, General Mills (GIS), increased quarterly dividends over the past week. The company General Mills, Inc. manufactures and markets branded consumer foods in the United States and internationally. The company raised its quarterly dividends by 7.30% to 44 cents/share. This marked the 12th consecutive annual dividend increase for this dividend achiever. Over the past decade, the company has managed to increase dividends by 10.70%/year. Please check my most recent analysis of the company for more details.
Between 2004 and 2014, the company has managed to increase earnings per share from $1.38 to $2.83. This comes out to an average annual increase of 7.40%/year. Earnings are expected to be at $2.82 in 2015 and $3.01 in 2016. The company is experiencing near term headwinds in profitability, as consumers are getting more health conscious. Without further gains in earnings per share, future dividend growth will be limited and will be running on fumes (increases in the dividend payout ratio).
That being said, I still believe the company has what it takes to kick start growing earnings. Some of the things being done include cost containment initiatives, new products being introduced to target health conscious consumers and acquisitions of other brands or companies. The recent acquisition of Annie’s, Annie’s, Inc. is a natural and organic food company, could expand the company’s presence in the fast growing natural and organic food category. Savings from the company’s ongoing Holistic Margin Management (HMM) program are targeted to exceed $400 million in fiscal 2015, and several incremental cost-reduction actions launched in 2015 are expected to contribute to margin improvement in the second half. General Mills has a few initiatives to streamline its North American supply chain network and reduce overhead costs are on track to generate $40 million in cost savings in the second half of fiscal 2015. Cumulative annual savings from these efforts are expected to total between $260 and $280 million in fiscal 2016, and exceed $350 million in fiscal 2017.The company has also used share repurchases in order to reduce the number of shares outstanding from 818 million in 2005 to 632 million in 2014.
The international segment could also provide some long-term growth in earnings. It currently accounts to close to one third of sales. The thing about international sales is that their growth will be lumpy, since it will be heavily affected by currency fluctuations in the short-run.
Currently, the shares are meeting my entry criteria as they are selling at 18.70 times earnings, and yield 3.34%. The dividend payout is at 62%, which is slightly higher than what I want it to be. I may add to my position in the stock in January 2016, if shares are selling below $52.50/share. I have sold some puts on the stock. If exercised, my effective cost will be close to $48/share. If exercised, I would have reached a position size in my portfolio that would prevent me from adding more funds to this company. Given that information and given the slowdown in earnings growth, I view the company as a hold.
Full Disclosure: Long GIS
- How to read my weekly dividend increase reports
- General Mills (GIS) Dividend Stock Analysis
- Rising Earnings – The Source of Future Dividend Growth
- I purchased this dividend machine last week
- Dividends versus Share Buybacks/Stock repurchases
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