Over the past 10 years General Mills Inc (NYSE:GIS) has been paying dividends to shareholders. The stock currently pays out a dividend yield of 4.5%, and has a market cap of US$26.3b. Let’s dig deeper into whether General Mills should have a place in your portfolio.
5 questions I ask before picking a dividend stock
Whenever I am looking at a potential dividend stock investment, I always check these five metrics:
- Is their annual yield among the top 25% of dividend payers?
- Does it consistently pay out dividends without missing a payment of significantly cutting payout?
- Has dividend per share amount increased over the past?
- Can it afford to pay the current rate of dividends from its earnings?
- Will it be able to continue to payout at the current rate in the future?
How does General Mills fare?
General Mills has a trailing twelve-month payout ratio of 54%, which means that the dividend is covered by earnings. Going forward, analysts expect GIS’s payout to increase to 64% of its earnings, which leads to a dividend yield of 4.8%. However, EPS is forecasted to fall to $3.01 in the upcoming year. Therefore, although payout is expected to increase, the fall in earnings may not equate to higher dividend income.
When assessing the forecast sustainability of a dividend it is also worth considering the cash flow of the business. Cash flow is important because companies with strong cash flow can usually sustain higher payout ratios.
If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you’re eyeing out is reliable in its payments. GIS has increased its DPS from $0.86 to $1.96 in the past 10 years. During this period it has not missed a payment, as one would expect for a company increasing its dividend. These are all positive signs of a great, reliable dividend stock.
Relative to peers, General Mills produces a yield of 4.5%, which is high for Food stocks.
Keeping in mind the dividend characteristics above, General Mills is definitely worth considering for investors looking to build a dedicated income portfolio. Given that this is purely a dividend analysis, I recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. Below, I’ve compiled three important aspects you should further research:
- Future Outlook: What are well-informed industry analysts predicting for GIS’s future growth? Take a look at our free research report of analyst consensus for GIS’s outlook.
- Valuation: What is GIS worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether GIS is currently mispriced by the market.
- Other Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.