Kellogg Company (K), General Mills, Inc. (GIS): Three Reasons To Buy This Income Growth Stock

Besides that, Kellogg is also launching several new products in its breakfast segment. Most of the cereal demand comes from the breakfast segment, which is vital for growth of the world’s second largest cereal company. This would not only bolster its organic growth, but also diversify its product mix and eventually result in a well-rounded meal segment.

Furthermore, its operations in emerging markets have been reporting double-digit growth for the last couple of quarters. As of now the company generates around 6% of its overall revenues from emerging nations, which is expected to double over the next couple of years.

Investor’s delight

The board of Kellogg also recently authorized a $1 billion worth of repurchase program. The buyback program is expected to complete April 2014, which should allow the company to repurchase exercised options during the period.

This equates to a pending share repurchase of 4.34% of its total outstanding shares, which should boost its dividend yield to 3.01%.

As of now, Kellogg pays out $1.76 per share, which equates to a yield of 2.84%. With a free cash flow yield of 5.27% and cash flow coverage of 2.7x, I don’t think its dividend sustainability is a cause of concern.

Final words

Kellogg is a solid company and its acquisition of Pringles could continue to fire up its EPS. This coupled with its share repurchases along with dividend payouts would only bolster its EPS. According to analysts at UBS, the fair price for Kellogg is around $75 per share, which calls for a 20% upside from the current price.

Piyush Arora has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Piyush is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article 3 Reasons To Buy This Income Growth Stock originally appeared on Fool.com is written by Piyush Arora.

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