General Mills’ Dividend Yield is 3.2% Today, But its Dividend Growth is the Real Attraction

Like its rivals in the packaged-food sector, General Mills (GIS) is getting squeezed on two fronts. Prices for the commodity foods it uses to make its products keep rising. And at the same time, consumers are growing more resistant to paying the premium prices that branded-food makers charge.

Every time the company tries to pass its higher costs along to shoppers, it runs the risk of driving more customers to cheaper house-brand competition. It’s a balancing act, and the maker of Cheerios, Betty Crocker cake mixes, Haagen-Dazs ice cream and Pillsbury dough has had pretty good luck in pulling off. Profit margins remain okay, in part because of the company’s success in rolling out higher-margin convenience products.

GIS Profit Margin Chart

GIS Profit Margin data by YCharts

Whenever the economy starts heading into the tank, investors grow interested in slow-growth makers of consumer staples, because demand for groceries holds up during bad times. That safe-harbor investing helped shares of General Mills and competitors like ConAgra (CAG), Campbell Soup (CPB) Kellogg (K) outperform the broad market during the latest recession. But since the economy began to recover, General Mills shares have shown a bit more zip than other food makers.

GIS Chart

GIS data by YCharts

Its shares tend to be a bit pricier, also, based on its PE ratio.

GIS PE Ratio Chart

GIS PE Ratio data by YCharts

General Mills has been making the right moves: boosting its presence in faster-growing offshore markets through acquisitions, spending on promotions to keep its portfolio of long-in-the-tooth brands in the game, and trimming its cost structure. Even so, in a mature marketplace, future growth is going to be muted. That’s one reason the company pays stockholders a solid dividend.

GIS Dividend Chart

GIS Dividend data by YCharts

General Mills used to pay out only a modest dividend, but it’s been bumping up the payout steadily for nearly a decade. Those increases boost yield for long-term investors: General Mills shares purchased six years ago, when the stock cost $25.20 and was paying a 68-cent annual dividend, offered a 2.67% dividend yield, for example, but with the dividend now up to $1.22 a year, the shares bought in 2006 are now providing a dividend yield of 4.84%. And General Mills shares have over the same period appreciated just a bit over 50 percent. (to $38.37).

The dividend payout has historically been well covered, even when earnings come under pressure.

GIS Payout Ratio TTM Chart

GIS Payout Ratio TTM data by YCharts

For dividend-oriented investors interested in a recession-resistant holding with a yield that grows over time, General Mills shares are worth a look – despite the company’s modest growth prospects. Of course, whenever we buy a stock for its dividend, we’re acquiring the underlying shares as well. Before committing to any security, it’s important to check out the company’s fundamentals, and to read through its 10-K.

James P. Miller is an editor for the YCharts Pro Investor Service which includes professional stock charts, stock ratings and portfolio strategies.



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