General Mills (GIS) will report third-quarter fiscal 2016 earnings before the opening bell Wednesday. Investors who are looking for a solid growth candidate that also pays an above-average dividend yield can do well with General Mills.
Known for its Cheerios cereal, Yoplait yogurt and various ready-to-eat foods, the Minnesota-based company has seen its stock climb some 6% year-to-date and 18% over the past 12 months, against a year-to-date decline of 1% for the S&P 500 (SPX) . Thanks to various cost-cutting initiatives, combined with strategic acquisitions to shore up its product portfolio, General Mills looks well-positioned to deliver earnings growth in the years ahead and sustain its current outperformance.
So while General Mills stock -- at a forward P/E of 21 -- doesn't scream bargain today compared with a 17 P/E for the S&P 500 index, General Mills also pays a 46-cent quarterly dividend that yields 3.04% annually, which is one full percentage point higher than the S&P 500. The company, thanks to its strong cash flow of almost $3 billion annually, has raised its dividend almost 60% in the past four years.
In my view, the safety General Mills' dividend creates, combined with the year-to-date returns the stock has already provided, trumps the implied lack of value of its P/E. And after Wednesday's results, these shares likely won't get cheaper.
For the quarter that ended in February, the company is expected to earn 62 cents per share on revenue of $4.09 billion, compared to the year-ago quarter when earnings were 70 cents on revenue of $4.35 billion. For the full fiscal year ending in May, earnings are projected to be a flat $2.86 per share, while revenue of $16.65 billion would mark a year-over-year decline of 5.6%.