General Mills (GIS) Stock Analysis

Time for a dividend stock analysis over a company we are all well aware of, are one of our dividend aristocrats and is a legacy type stock.  We all have seen the commercials, definitely have had a bite of their branded products and is  a staple in almost every household.  Who else doesn’t want a jolly green giant, multi grain crunching cereal  with a little “woo hoo” from a poke in the stomatch?  Yes, I am referring to the General Mills (GIS) company who pumps over $19 billion in sales annually (combined domestic and international).   Let’s see how good that honey bee tastes!download

The Stock – General Mills (GIS)

General Mills (GIS) – Who doesn’t eat cereal?  Who doesn’t love at least one of the brands that they own – Betty Crocker, Pillsbury, Cheerios, Wheaties, Lucky Charms, Haagen Dazs ice cream, the big green giant, Old El Paso for taco nights, Totinos pizza (come on college kids), Progresso soup and even Yoplait yogurt.  Talk about a slew of products, across different areas of breakfast, baking, dinner, snacks and quick meals.  Definitely a company that I have seen one of their brands in everyone’s cupboards, that is for sure.  From Google to provide a summary of the company, “General Mills, Inc. is a global manufacturer and marketer of branded consumer foods sold through retail stores. The Company is a supplier of branded and unbranded food products to the foodservice and commercial baking industries. The Company has 50 percent interests in two strategic joint ventures that manufacture and market food products sold in more than 130 countries worldwide. ”  Sounds about right to me.  What caused me to do the research is that I had a box of Cheerios in my cupboard, yoplait yogurts in the refrigerator with a can of Progresso soup on the shelf as well (loving General Mills coupons by the way!).  And thought – to heck with it, research time it is.  Let’s look at the metrics now that we’ve gotten a pretty good background on the company out of the way…

GIS – Dividend Diplomat Screener Analysis

Well, as of this writing on 5/10/15 – the stock is trading at $56.27.  They are over $30B in market capitalization and are a strong branded company.  Though they are not a low yield, high dividend growth company, I’m curious on how that dividend has been holding up.  They are up about 5.5% this year and over the last 52 weeks are up 3.44%.  Using the dividend diplomat stock screener, lets check the stats:

  1. Price to Earnings – Forward earnings are looking to be $2.99 now based on the analysts for FY 16 (they have a May year end).  With the price at $56.27, this means the P/E is roughly 18.82 – a smidge below the S&P’s approximate 20 and is below the industry average of low to mid 20’s and is also below competitor of Kellogg.
  2. Dividend Yield – Current dividend payment is $1.76 per year after a 3 cent increase from 41 cents per quarter to 44, or 7.3% growth this year, not bad.  Yield is currently at 3.13%, higher than the average market and also a tad higher than Kellogg. Also – it’s higher than the cost of my auto loan, but still is lower than my after-tax mortgage interest rate as discussed on my debt update.
  3. Payout Ratio – At an expected $2.99 EPS for the year with a $1.76 dividend, this leads to a payout ratio of 59%.  Just below the 60% threshold that I like to see, and they traditionally are using on the higher end (in the 70’s), so still shows there is slight room to grow.
  4. Dividend Growth Rate – As well all know, the power of the growth rate is real.  General Mills has great history of dividends, one that we have all come to love and with a recent 7.3%, that is not too shabby.  The 3 year dividend growth rate is 11.12% and the 5 year dividend growth rate stands at 11.79%.  These are both higher than my over dividend growth rate %, I love it, as I recently described my portfolio assessment (I’m currently at roughly 6.83% due to an oil stock standing still).
  5. Share Buy Back – On March 6th, 2015, from their recent 10Q filing – the # of shares were 596,089,958.  Last year’s March 2014 filing, the # of shares were 614,492,206.  Whoa.. this is a drop of 3% of their total shares and it doesn’t look like it’s slowing down.  Further, the board in 2010, “On June 28, 2010, our Board of Directors approved and we announced an authorization for the repurchase of up to 100,000,000 shares of our common stock. Purchases can be made in the open market or in privately negotiated transactions, including the use of call options and other derivative instruments, Rule 10b5-1 trading plans, and accelerated repurchase programs. The Board did not specify an expiration date for the authorization.”  See why this is big news for dividend investors and is a good note to consider for GIS.  Essentially – management can control shares, which controls EPS, which then can control the payout ratio/dividend increases/amounts.
  6. Five Year Dividend Average – General Mills not looking too shabby here, with a 5 year average yield of 2.90%, which is less than the 3.13%, I dig it, I dig it.  As you know – I love the comparison to the five-year dividend yield average!
  7. EPS Growth:  I also want to show the EPS growth GIS has had over the last 3 years from 2012 to 2014.  Though they are a May year end, this is the easiest for me to view right from, so essentially this is May 2012 through May 2014.  From 2012 – to 2013 = 18% earnings growth but from 2013 to 2014 = only 1.4% earnings growth.  Through 9 months of FY 15, they were only at $1.71 EPS or $2.28 annualized (still enough to cover the dividend), but I believe their 4th quarter, analysis are projected over $1 EPS.  We shall find out.  I don’t really like to see EPS slide, obviously.  They have had big impairment charges that they haven’t had in the past at the level they have had this year.  Wonder how their earnings will play out.

GIS Earnings

Conclusion on GIS Stock Analysis

Hmmm….  I’m not too sure what to think.  I’d like to see the full year earnings per share before I make any decisions or add to my watch list.  Obviously the dividend growth rate of over 10% is awesome, but at the same time, earnings are being pressured and a sign is from their recent increase of just a tad over 7%.  What I do like is that the yield is strong, they are a legacy brand with some of the most popular names out there.  Even if they can only maintain a 7% dividend growth rate and the yield remains around 3%, they would remind me a bit of Johnson and Johnson, who I recently purchased for my 2nd time a bit ago.  I’ll continue to monitor and may hold back from a stock watch inclusion until I see the EPS figure and read why it was down and “why” it would be better “next year” – something that hurts Clevelanders stomach from our sports fiascos.

How about you the readers?  Do you like the valuation where it is at now?  Would you buy some of these cheerios here?  I’d be curious to see.   I think they are a well known, large, solidly run company and a staple amongst families with children, without a doubt (even adults, come on now!).  I am curious on your thoughts!  Thanks everyone and happy investing!

-Lanny

DISCLOSURE: I DO NOT RECOMMEND ANY DECISION TO THE READER OR ANY USER, PLEASE CONSULT YOUR OWN RESEARCH. THIS IS ACTUAL DATA, ANALYSIS, HOWEVER I BASE NO INVESTOR RECOMMENDATION.  THANK YOU FOR YOUR UNDERSTANDING.
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14 thoughts on “General Mills (GIS) Stock Analysis

  1. Thanks for the analysis! Looks like a great company to own for dividend growth. I think I’ll wait for a dip in stock price before adding it to my portfolio. In the meantime I’ll definitely continue to buy Cheerios…

    • Empire,

      Thanks for coming by! I also would recommend the dip in price, valuations just aren’t there and with the market having a little slide overall at the moment, I could see this going down, especially with the earnings pressure at the moment.

      -Lanny B.

      And yes – cheerios… haha

  2. Awesome analysis Lanny and thank you for that. I own 30 shares of GIS with a cost basis of $51.88 and have it for more than a year, I would love to add some more but not at this price level, with historical 5 year P/E of 16.6 vs forward P/E of 19.6, forward eps growth estimate at 4-5%, I see payout ratio will be a bit higher in the upcoming years ahead but this is still a defensive stock, I would love to add if the price falls from here (say below $48 to average down) and also if the forecast earnings is up for the forward P/E to be reasonable. Again thanks for the analysis!

    • FtFF,

      Nice job already owning shares at a MUCH lower cost basis at the moment. I agree, their P/E and valuations are tad high right now and the payout ratio should only chug upward IF they keep the div growth at the same level.

      I agree if the earnings show better results, which we should find out fairly soon and if price comes down, both essentially, then I’ll look harder at them.

      Thanks again!

      -Lanny

  3. Thanks for sharing Diplomats. General Mills is one of our largest holdings. Commodity prices will probably continue to be a headwind going forward, but this company has always found ways to raise dividends and squeak out growth. I’m also hoping bond proxies, like consumer staples dividend stocks, fall out of favor when the bond market turns. I wouldn’t mind picking up a few hundred more shares.
    -Bryan

    • Income Surfer,

      No problem! great company and always do find the ability to raise dividends. Curious on what GIS can do with their earnings per share. They could always buy more shares to make that “look better” eh? Appreciate the post!

      -Lanny

  4. That’s a nice analysis of General Mills. It is a solid company, which has been around for over a century, and will likely be a staple in homes throughout the world in the next century as well. That being said, growth has slowed down a tad recently. And if you get in at a lower price, future returns might be better.

    By the way, your comment system tells me my comment was spam. I guess it doesn’t like my name. I persevered, but still 🙂

    • DGI,

      It is a solid company and I know is in everyone’s cupboard. What’s weird, is they’ve gone up almost $1 since the post, just when you think it’s already overvalued as heck!

      My darn comment system – I wonder who’s A$$ I can kick to fix that!

      -Lanny

  5. No doubt that the company shows some high quality here. I like the growth, I like the brands, I like the yield. Payout Ratio and EPS growth are what would make me think twice, especially at this price. But definitely a stock to watch in my opinion!

    Cheers Lanny!

    Mike

    • DG,

      I am watching it as well. But I couldn’t agree more – it’s overvalued in my mind and there are better options out there within the consumer product category, without a doubt. Keep watch on it and if it drops $5 or so per share, then it’s worth the eye brow raise!

      -Lanny

  6. GIS is just one of them. Nestlé, Coca Cola, Pepsi, Unilever. They feed the world! The Problem with those is they are never cheap. Therefore you have to buy them now and hold for every (unless something strange is happen).

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