Dividend Farming Scorecard: General Mills (GIS)

Dividend Farming means reviewing agriculturally related firms once in a while.  General Mills (GIS) is frequently listed in the Consumer Staples group.  However, there aren’t many pure play agricultural firms listed in the CCC.  Consequently, I’m looking at it as providing a small, agricultural lean to my portfolio.  Besides, I’ve often considered General as a potential add to the Dividend Farm so why not take a look now?

The table below offers a summary of the criteria I explore within my selection process applied to General Mills on January 25, 2019.  Financial data was sourced from Yahoo.Finance.com.  The dividend history is courtesy of DRiPInvesting.org.

FACTOR	TARGET METRICS	GIS
CCC List	Champion	Contender
Current Yield	4.0%	4.5%
Company Profile	Red Flags	Treasury Stock?
Industry Leadership	Top 10	#10
Market Cap	$10 B+	$25.8 B+
P/E	< 20	12.6
P/B	< 2	3.88
Debt / Equity	< 1	1.2*
Dividend History	25 Years	15
12 Month Price Range	Lower Half	Bottom Third
Dividend Payout Ratio	< 75%	57%
Portfolio Weight	Max of Slightly Over	Under

The first column lists the major factors I review.  The middle column lists benchmarks I’m targeting.  The last column highlights General Mills’ metrics so I can see how well they align with my benchmarks.

CCC List: The list is found on the DRIPinvesting.org web site specified as Champions, Contenders, and Challengers.  GIS is listed as a Contender which is solid if unspectacular.

Current Yield:  GIS’s yield is currently 4.5% which is above my target yield and therefore appealing.

Company Profile:  GIS is involved in nearly all things food from processing to distribution including both standard and organic products.  Brands it markets include Cheerios, Betty Crocker, Bisquick, Fruit Roll-ups, Larabar, and a host of others.  HQ in Minneapolis-St. Paul puts it squarely in agricultural country.

Industry Leadership:  Foodprocessing.com listed GIS as the tenth largest food processing firm in the nation so it squeaks under the wire regarding my leadership benchmark.

Market Capitalization:  The market cap for GIS is 2.5 times my target so it has adequate size.

Price to Earnings:  The P/E of 12.6 is very solid.  Coupled with the yield it looks good thus far.

Price to Book:  P/B lands at 3.88 which is nearly double my target.  That needs additional consideration.  I suspect it means investors are paying for brand recognition versus material value in which case I would have to consider the amount of blue sky I want to purchase.

Debt to Equity:  D/E shows 1.2 with an asterisk.  As with a previous post regarding UnitedTechnologies, the Treasury Stock line item can do a number on the D/E figure.  In this case, the Treasury Stock was stripped out, but if included in the paper calculation, the resulting D/E would put GIS out of contention.

Dividend History:  15 consecutive years of dividends is solid, but unspectacular as stated earlier.

Price Range:  At $43.29 as of 1.25.19, GIS is in the bottom third of its trailing 12-month (TTM) range trending downward.  This improves the yield, which is good, and may represent a buy opportunity, but the book value metric needs strong consideration.

Payout Ratio:  A payout ratio at 57% is well within my range leaving ample room for growth.  The Dividend Growth Rate (DRG) tracked by DRIP Investing is at 4.3%, down from its 10-year mark of 9.8%.

Portfolio Distribution:  GIS would improve my portfolio weight in the agri sector if I allocate it as such.  However, if I leave it as a consumer staples firm where many analysts place it, then it merely adds to an already solid position in that space. 

Analysis: 

GIS’s metrics are not pristine, but not a total bust by any stretch.  As a Dividend Farmer I need to look long and hard at Treasury Stock use and outcomes since it’s shown up in two successive posts.  If I continue to see it as a major factor in other D/E calculations, I’ll need to delve into that item as well as the ways in which different management teams have used (manipulated?) it before pulling the buy trigger.  Otherwise, one other consideration is the quantity of blue sky I’m willing to pay for with a book value approaching 4 to 1.  I’ll keep a watchful eye going forward. 

The thoughts and opinions expressed here are those of the author, who is not a financial professional.  Opinions expressed here should not be considered investment advice.  They are presented for discussion and entertainment purposes only.  For specific investment advice or assistance, please contact a registered investment advisor, licensed broker, or other financial professional.