An above average yield
The recent dividend increase has put General Mills, Inc. (NYSE:GIS)’ dividend at the top of the heap among other large packaged food companies, namely Kellogg Company (NYSE:K) and Campbell Soup Company (NYSE:CPB).
| Company | Dividend Yield |
|---|---|
| General Mills | 3.2% |
| Kellogg | 2.82% |
| Campbell Soup | 2.75% |
General Mills and Kellogg are the two largest cereal companies in the US, while Campbell Soup Company (NYSE:CPB) competes with General Mills, Inc. (NYSE:GIS)’ Progresso brand of soups. Before the dividend increase all three companies had very similar dividend yields, but that increase has pushed General Mills well above the competition.
Growing dividends
Equally important to the yield is the growth rate of the dividend. While the past is not necessarily an indication of the future, it’s useful to examine the record of dividend increases for each company. For the sake of consistency I’ve used the date of declaration to categorize dividends by year, not the date of actual payment.
| Year | General Mills | Kellogg | Campbell |
|---|---|---|---|
| 2012 | $1.295 | $1.74 | $1.16 |
| 2011 | $1.195 | $1.67 | $1.16 |
| 2010 | $1.085 | $1.56 | $1.115 |
| 2009 | $0.93 | $1.43 | $1.025 |
| 2008 | $0.845 | $1.30 | $0.94 |
| 2007 | $0.77 | $1.202 | $0.84 |
| 2006 | $0.705 | $1.137 | $0.76 |
| 2005 | $0.655 | $1.06 | $0.70 |
| 2004 | $0.603 | $1.01 | $0.656 |
| 2003 | $0.552 | $1.01 | $0.632 |
Dividend data for GIS, K, and CPB
On an annualized basis since 2003 General Mills, Inc. (NYSE:GIS) has grown its dividend at a rate of 10% per year. This eclipses both Kellogg’s growth rate of 6.2% and Campbell Soup Company (NYSE:CPB)’s growth rate of 7% handily, and is even higher factoring in the recent 15% dividend increase. In 2013 General Mills is set to pay $1.47 in dividends, raising the annualized rate to about 10.3% since 2003.
What the future holds
Clearly, in terms of both yield and past growth General Mills is by far the winner among these three companies. One last thing to look at is how much of the free cash flow is dedicated to dividends, the so-called payout ratio. This will give us a clue as to whether or not past growth rates can be sustained in the future.
| Year | General Mills | Kellogg | Campbell |
|---|---|---|---|
| 2012 | 50.0% | 51.1% | 46.4% |
| 2011 | 90.5% | 60.7% | 43.9% |
| 2010 | 48.4% | 110.4% | 51.5% |
| 2009 | 50.5% | 43.4% | 44.7% |
| 2008 | 48.5% | 62.1% | 76.5% |
Except for an outlier year for both General Mills and Kellogg all three companies maintain payout ratios right around 50% on average. For all three companies it seems that future dividend growth will come mainly from earnings growth, since the payout ratio is unlikely to expand considerably in the future. Given that General Mills has maintained this 50% payout ratio consistently I would suspect that the dividend growth over the next ten years will be similar to the dividend growth over the past ten years, maybe not 10% but certainly in the high-single digits. This makes General Mills, with a higher yield and a higher growth rate than both Kellogg and Campbell Soup Company (NYSE:CPB), the best dividend stock of the bunch.
