Dividend history
The May 2013 dividend is set at $.33 per share. The dividend will increase by 15% to $.38 per share in August of 2013. The company has increased its dividend payout rate 14 times in the last 9 years. The annualized dividend yield is 3.3% based on current prices and a total $1.52 per share in dividends.
General Mills, Inc. (NYSE:GIS) has distributed dividends for the last 114 years completely uninterrupted. In the last 6 years, dividends have continued to rise. (Image from General Mills corporate website.)
Based on the increased dividend payout rate, this stock is an excellent candidate for investors who are focused on dividends. This dividend growth is already priced in to the stock, but future dividend growth will mean higher stock prices.
Based on the dividend growth and the dividend discount model, the 1 year price target for General Mills is $53.12 per share.
Earnings projections
Future earnings growth is slowing down. There will likely only be mid-single digit growth in the next year. General Mills recently acquired Yoplait yogurt brand as well as a Brazilian company Yoki. General Mills, Inc. (NYSE:GIS) has already seen a 9% rise in yogurt sales due to the acquisition. One major issue facing General Mills – and the food industry as a whole – is rising food costs. As the global economy continues to grow, food and food products are in higher demand. Fuel, energy and transportation costs only add to the rising food costs that General Mills must overcome.
General Mills, Inc. (NYSE:GIS) is launching new breakfast products for consumers on the go. It is focusing on breakfast drinks to add to cereal sales.
Based on estimates, earnings for General Mills this past quarter should come in around $.56 per share. Because of rising food costs, General Mills will likely only see 4-6% growth in the next year.
Still, earnings growth is positive. And as a result of this growth, the company has a dedication to returning profits to investors. The dividend increase announcement is a positive sign of future earnings.
Stock valuation
To understand the success of General Mills, Inc. (NYSE:GIS), it is important to look at two of its major competitors: Kraft Foods Group Inc (NASDAQ:KRFT) and Kellogg Company (NYSE:K).
| Company | Stock Price (Mar 12, 2013) | EPS TTM | 5 year EPS Growth | P/E | Potential Relative Value |
|---|---|---|---|---|---|
| General Mills | $46.27 | $2.71 | 7% | 17.15 | $56.63 |
| Kraft | $61.73 | $2.75 | -3% | 18.45 | $52.05 |
| Kellogg | $50.55 | $2.67 | -1% | 23.22 | $51.67 |
Kraft has seen a volatile earnings trend in the last 5 years. The average growth rate is a loss of 3%. It recently announced that 2013 should see a further decline in earnings. It anticipates a decline of 10.7% due to inventory reductions. Based on comparable price to earnings ratios and a slight decline in earnings, the price target for Kraft is $52.05.
Kellogg, too, has seen a mix of earnings. Even with the rising food costs, Kellogg expects a growth of 4.71% in its earnings next year. Its focus on “lean” and healthy foods has made it attractive in a health-conscious market. This intensive and focused marketing will help it grow its earnings in the coming years.
General Mills, Inc. (NYSE:GIS) has been outperforming both Kraft and Kellogg. The continual increase in dividends with their earnings growth in the past has made it a strong company to buy. Rising food costs and changes in consumer demands will slow the growth in the next year, though.
With a 4% growth rate, the target price for General Mills is $50.71.
Austin Higgins is the Principal Consultant for Avant Venture Group. and focuses on building businesses through innovation, growth and investment. Read his company’s blog at BuildInvestGrow.com and follow him on Twitter @Austin_Higgins.
The article General Mills Dividends Could Mean Great Earnings originally appeared on Fool.com and is written by Austin Higgins.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
