We know that Ken Powell, the CEO, has done a magnificent job of navigating through grain inflation, gasoline inflation, cutthroat competition and a fickle and chary consumer. His slow and steady hand on the tiller is certainly worth a higher multiple than the S&P 500, which currently trades at 15x earnings. So as that S&P multiple goes higher, it is reasonable to think that General Mills should, too.
Second, General Mills has been nothing short of remarkable in its dividend payout. In 2018, General Mills paid 79 cents in dividends. Now it pays $1.22. That's just a terrific appreciation. During that time, the market capitalization has gone from $20 billion to $31 billion, so if the stock had stayed at the same market cap during this period, it would be yielding almost 4%.
I think that's the key to the equation. You cannot get a safe 4% yield with 10% growth in this market anymore, because the world is starved for yield, thanks to the low-interest-rate environment, stoked in part by Ben Bernanke. I think the reason we can go from 15x earnings to 18x is that the dividend tax advantage unexpectedly stayed low at the same time as Bernanke committed us to low rates until 2015. It's that, not the earnings, that's driving this machine.
How do we know this? Because you can perform the exact same function for almost every single soft-goods company that's now yielding 3%. Same progression of the dividend, same progression of the multiple to earnings. That's why the step up. Greater fool? No, just greater search for safe dividends that give you a tax-advantaged yield. And that explains the levitation, not the growth of the packaged goods market, and not the lower input costs. That explains the conundrum. That's something we can live with, even up at these elevated levels, at least for now.