
General Mills Has Done This to Reward Investors for 117 Years
NEW YORK (TheStreet) -- It's no secret that high-quality dividend growth stocks make excellent investments for long-term investors.
When a business can pay steady or increasing dividends year after year, it's a sign of two things:
The company's management wants to reward shareholders.
The business can generate stable, increasing cash flows over long time frames.
To say that General Mills (GIS) - Get Report has a long dividend history is a gross understatement.
It's like saying Michael Jordan was good at basketball, or Warren Buffett is rich. It's true, but it doesn't capture the magnitude of achievement.
General Mills has paid steady or increasing dividends for 117 years. I don't know of any other business with that long a dividend streak.
The Secret to General Mills Longevity
General Mills has been so successful for so long because it operates in a slow-changing industry -- it sells brand-name packaged food products.
The company has no shortage of easily recognizable brands. Several of General Mills' most famous brands are listed below:
- Cheerios
- Pillsbury
- Wheaties
- Progresso
- Haggen-Dazs
- Betty Crocker
- Yoplait
- Annie's
- Nature Valley
- Lucky Charms
- Cascadian Farms
- Hamburger Helper
- Food Should Taste Good
Some companies must constantly reinvent themselves to stay successful. How long did BlackBerry (BBRY) maintain market dominance? What is Garmin's (GRMN) - Get Report future? How will AbbVie (ABBV) - Get Reportfare after its Humira patents expire?
These are the type of questions that General Mills does not have to face.
People will always need food. As long as people favor the comfort and familiarity of known brands, General Mills will prosper.
All the company has to do is keep up-to-date with slow-changing industry trends. Today, that means a greater emphasis on healthy foods, and fad concepts like "gluten free" and "high protein."
General Mills' Competitive Advantage
As you might have guessed for a business with 117 years of consecutive dividend increases, General Mills is a large corporation.
The company currently has a market cap of $33.8 billion. For comparison, the company's largest competitors' market caps are listed below:
- Kellogg (K) - Get Report has a market cap of $23.8 billion
- ConAgra (CAG) - Get Report has a market cap of $18.1 billion
- Campbell Soup (CPB) - Get Report has a market cap of $15.7 billion
- J.M. Smucker (SJM) - Get Report has a market cap of $13.8 billion
General Mills is the industry leader in packaged food. As a result, the company can outspend its rivals and build stronger brands, faster. General Mills has spent over $800 million a year on advertising and media in each of its last five fiscal years.
High spending on advertising and media results in lots of familiarity for its brands.
Total Return and Valuation
General Mills is targeting long-term total returns of 10% or more.
The company will attempt to accomplish these returns through a mix of revenue growth, margin improvements, share repurchases, and dividend payments.
Specifically, General Mills is expecting low-single digit revenue growth; I expect it to generate revenue growth of between 2% and 3% a year.
Margins improvements from the company's three efficiency plans are expected to add another 3 percentage points a year to total returns. Those efficiency plans are:
- Project Century: Improve the North American supply chain.
- Project Catalyst: Eliminate 800 positions in the United States.
- Project Compass: Eliminate about 700 positions internationally.
Share repurchases will add an additional 2% to 3% to total returns.
Finally, General Mills has a dividend yield of 3.1%. Adding up the returns from these sources gives General Mills investors expected total returns of 10% to 12% a year.
General Mills is trading for an adjusted price-to-earnings ratio of 18.9. Adjusted earnings do not include the costs of current improvement plans; they better reflect the true earnings power of General Mills. Given that General Mills is a high-quality business with above-average expected total returns, it should be trading for a slight premium to the S&P 500 -- a price-to-earnings ratio of around 20 is appropriate for the company.
Therefore, I believe that General Mills is slightly undervalued at current prices.
The company's combination of reasonable value, long dividend history, above average yield, and strong total returns, combined with safety and stability make General Mills a favorite of The 8 Rules of Dividend Investing.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.








