This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Cramer: The Conundrum of Expanding Multiples

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.

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free


Chart of I:DJI
DOW 17,773.64 -57.12 -0.32%
S&P 500 2,065.30 -10.51 -0.51%
NASDAQ 4,775.3580 -29.9330 -0.62%

Our Tweets

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs