Last Month, General Mills, Inc. (NYSE:GIS), the world’s 9th-largest producer and marketer of packaged food and the 5th-largest in the United States, announced impressive FY13 results with 7% growth in the top line and 19% growth in its bottom line. As a result, the stock has seen some positive momentum and has traded up 7% over the last month.
The company has expanded its international presence with the acquisition of the Brazilian food company Yoki and Yoplait International and as a result the international segment saw a tremendous 25% year over year revenue growth in the last quarter.
Overall, I remain optimistic about General Mills, Inc. (NYSE:GIS) given its strong market share positioning in some leading food categories, focus on innovation, growing international presence and strategic acquisitions. I feel the stock may see a further upside from the current levels.
Safe Bet for Dividend Investors
General Mills, Inc. (NYSE:GIS) is an extremely safe company for dividend investors. The company has also been generous in returning cash to its shareholders with consistent year over year dividends for the last 80 years. General Mills has managed to increase its annual dividend payments by at least 8% annually over the last four years. Last year, the company saw a 22% increase in cash flow from operating activities and returned nearly $1.9 billion in cash to shareholders through dividends and share repurchases.
The current dividend yield stands at 3% which is the best-in-class when compared to its peers like Kellogg Company (NYSE:K) and Campbell Soup Company (NYSE:CPB). Let’s have a look at the dividend yield and payout ratio of these three companies.
| Company | Kellogg | Campbell Soup | General Mills |
|---|---|---|---|
| Dividend Yield | 2.6% | 2.5% | 3.0% |
| Payout Ratio | 69% | 49% | 47% |
We can see that not only General Mills, Inc. (NYSE:GIS) offers the best dividend yield, it also has the lowest payout ratio as compared to Kellogg Company (NYSE:K)’s and Campbell Soup Company (NYSE:CPB). Moreover, General Mills offers an unusually low beta of 0.15 which indicates that the stock is relatively far less volatile (or far more stable) than the overall market. Let’s compare its beta with Campbell soup and Kellogg.
| Company | Kellogg | Campbell Soup | General Mills |
|---|---|---|---|
| Beta | 0.45 | 0.31 | 0.15 |
Thus, a impressive dividend yield at a low payout ratio coupled with an extremely low beta makes General Mills, Inc. (NYSE:GIS) a safe bet for dividend investors while also offering a good upside potential.
Attractively Priced at Current Levels
Let’s first look at the valuation metrics of General Mills, Inc. (NYSE:GIS), Kellogg Company (NYSE:K) and Campbell Soup Company (NYSE:CPB).
| Company | Kellogg | Campbell Soup | General Mills |
|---|---|---|---|
| Forward P/E | 16.26 | 17.25 | 16.41 |
| PEG Ratio | 2.28 | 2.97 | 2.22 |
We can see that General Mills, Inc. (NYSE:GIS) is trading in-line with Kellogg Company (NYSE:K)’s and at a slight discount to Campbell Soup Company (NYSE:CPB). However, the company also has best-in-class expected growth rate to support its premium valuation and looks attractively priced on a PEG basis. Kellogg’s has a similar PEG ratio but Campbell Soup looks expensive on the PEG basis.
Let’s now take a look at the profit margins of these companies.
| Company | Kellogg | Campbell Soup | General Mills |
|---|---|---|---|
| Profit Margin | 6.3% | 8.9% | 10.5% |
From the profitability standpoint also, General Mills, Inc. (NYSE:GIS) again seems to be the clear winner. The company has been performing consistently over the last decade and maintained its profit margin around 11% over the last 10 years.
In my opinion, General Mills, Inc. (NYSE:GIS) continues to exhibit the strongest operating momentum in the group despite a difficult and volatile macro environment, and therefore should trade at a premium multiple to the group. The company provides a stable investment option for dividend investors given its extremely low beta. Moreover, General Mills commitment to shareholder value is highly impressive and shareholder friendly activities like dividends and share repurchases should limit any downside risk.
Neha Gupta has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.
The article Low Beta Stock With a Good Upside Potential originally appeared on Fool.com.
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