Company Description: General Mills, Inc. is a major producer of packaged consumer food products company that produces cereal, yogurt and Betty Crocker desserts/baking mixes.
Fair Value: In calculating fair value, I consider the NPV MMA Differential Fair Value along with these four calculations of fair value, see page 2 of the linked PDF for a detailed description:
1. Avg. High Yield Price
2. 20-Year DCF Price
3. Avg. P/E Price
4. Graham Number
GIS is trading at a premium to all four valuations above. Since GIS's tangible book value is not meaningful, a Graham number can not be calculated. When also considering the NPV MMA Differential, the stock is trading at a slight premium to its calculated fair value of $54.83. GIS did not earn any Stars in this section.
Dividend Analytical Data: In this section there are three possible Stars and three key metrics, see page 2 of the linked PDF for a detailed description:
1. Free Cash Flow Payout
2. Debt To Total Capital
3. Key Metrics
4. Dividend Growth Rate
5. Years of Div. Growth
6. Rolling 4-yr Div. > 15%
GIS earned one Star in this section for 3.) above. GIS earned a Star for having an acceptable score in at least two of the four Key Metrics measured. The company has paid a cash dividend to shareholders every year since 1898 and has increased its dividend payments for 12 consecutive years.
Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA) or Treasury bond? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:
1. NPV MMA Diff.
2. Years to > MMA
GIS earned a Star in this section for its NPV MMA Diff. of the $2,712. This amount is in excess of the $2,300 target I look for in a stock that has increased dividends as long as GIS has. The stock's current yield of 3.27% exceeds the 2.71% estimated 20-year average MMA rate.
Peers: The company's peer group includes: Kellogg Company (K) with a 2.9% yield, Campbell Soup Company (CPB) with a 2.5% yield and The Hershey Company (HSY) with a 2.2% yield.
Conclusion: GIS did not earn any Stars in the Fair Value section, earned one Star in the Dividend Analytical Data section and earned one Star in the Dividend Income vs. MMA section for a total of two Stars. This quantitatively ranks GIS as a 2-Star Weak stock.
Using my D4L-PreScreen.xls model, I determined the share price would need to increase to $60.33 before GIS's NPV MMA Differential decreased to the $2,300 minimum that I look for in a stock with 13 years of consecutive dividend increases. At that price the stock would yield 3.1%.
Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $2,300 NPV MMA Differential, the calculated rate is 9.4%. This dividend growth rate is lower than the 10.0% used in this analysis, thus providing a slight margin of safety. GIS has a risk rating of 1.75 which classifies it as a Medium risk stock.
GIS operates in relatively stable end-markets and has good brand strength, which should offer some protection from less expensive products. The company generates consistent free cash flows, however, its payout of 70% (up from 59%) is slightly below my maximum of 60%. GIS's debt to total capital of 69% (up from 63%) is also above my desired maximum of 45%. With a desirable current yield of 3.3%, the company has been on my radar. It is currently trading above my calculated fair value of $54.83. For now I will continue to monitor and wait for a more desirable entry point.
Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.
Full Disclosure: At the time of this writing, I held no position in GIS (0.0% of my Dividend Growth Portfolio). See a list of all my Dividend Growth Portfolio holdings here.
Related Articles:
- Sysco Corporation (SYY) Dividend Stock Analysis
- Caterpillar, Inc. (CAT) Dividend Stock Analysis
- Southern Company (SO) Dividend Stock Analysis
- Leggett & Platt, Inc. (LEG) Dividend Stock Analysis
- Medtronic Inc. (MDT) Dividend Stock Analysis
- More Stock Analysis
Tags: GIS, K, CPB, HSY,
