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General Mills, Inc. (GIS), Realty Income Corp (O) & More: Three High-Yielders With 10+ Year Records

I saw an article on Investorplace recently listing three high-yielding stocks that had recently raised their dividends and that had also been raising their dividends for at least ten years. Since I examine dividend stocks, I noticed that two of the names are companies that I have not yet analyzed closely, and the third I rejected some time ago, so I decided to take another look.

In my examination, I review the companies on seven different criteria: yield, number of years paying and raising dividends, 5-year dividend growth rate (DGR), 5-year projected earnings growth rate (EGR), total return for the past twelve months, PE and payout ratio. I feel that this selection covers the past dividend-paying history, the potential future earnings growth, and the valuation of the company.

I constructed a rating system that awards points for each of the previous named criteria. A “perfect” score would be 28 points, with 4 points awarded in all seven categories.

General Mills, Inc. (NYSE:GIS)

The first company on the list is General Mills, Inc. (NYSE:GIS), the consumer foods company. It is currently yields 2.9%. It has raised dividends every year for only nine years, but with its recently announced increase, we can possibly add 2013 as the tenth year – if it makes it through the entire year without cutting. The new dividend is a 15% increase over the previous quarter, its 5-year DGR is 11.0%, and it has returned 20.5% over the past twelve months.

Other metrics that I use when calculating a rating for a dividend company include the analysts’ 5-year annual growth estimate (7.9%), the company’s P/E (17.1) and its dividend-payout ratio (48%).

General Mills scores a 16 on my ratings system, which is too low to make it into my portfolio, but high enough to keep an eye on it for future. I like the company’s DGR and its twelve-month return, its payout ratio and PE are both reasonable, but its yield is a tiny bit too low, and until it hits 10 full years, it won’t be in my portfolio.

The second company is Realty Income Corp (NYSE:O), a real estate investment trust. Realty Income’s legal structure requires the company to pay out 90+% of its taxable income, which tends to result in high dividend yields for REITs in general. They do not enjoy, however, the favorable tax treatment that is inherent in an MLP dividend distribution.

The company is currently trading at approximately $44 and yields 4.9%. Realty Income is a monthly dividend payer, which is very attractive to people seeking steady income. The latest monthly dividend announced is an increase of only 0.2% over the previous quarter. The big increase was in January, when the dividend was raised by 19%. At the current dividend, the 2013 total paid out will top 2012’s total dividend by more than 30%.

The company does have a history of raising its dividend multiple times during the year, and it has raised dividends every year for 15 years, but its 5-year annual DGR is a low 3.1%. It has returned 20.9% over the past twelve months.

The analysts’ 5-year annual growth estimate is 5.4%, the company’s PE is 51.2 and its dividend-payout ratio is 215%.

After this year, the 5-year DGR will increase substantially, but I am concerned with the current valuation of the company. The increase in stock price has led to a PE of 51, which I am not comfortable with. And the big jumps may be a thing of the past with the low future earnings growth estimate.

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