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General Mills: The Dividend Is Delicious

Published Fri, 17 Feb 2017 01:38:04 -0500 on Seeking Alpha

General Mills (NYSE: GIS) is a decent company that has suffered some missteps in the yogurt space. At the moment it is trading at a reasonable discount to the overall market as a result of this and other factors, and I think the current valuation presents investors with an excellent opportunity. While the shares are relatively inexpensive, I think the most compelling reason to buy this company are the dividends.
Financial Overview
There's very little growth on display at General Mills. For instance, revenue has grown at a CAGR of about 2% since 2011, and net income has basically been flat in that time. This isn't a growth name, and perhaps that's why the shares trade at a slight discount. It may not have much in the way of growth, but it's clear that General Mills treats its shareholders right. Since 2011, management has returned approximately $12.6 billion to shareholders in the form of stock buybacks ($6.6 billion) and dividends ($6.04 billion). The payout ratio is relatively high, but there's little immediate cause for concern about liquidity.

Modeling The Dividend
Dividends paid out by General Mills have grown dramatically, especially over the past decade. Over the past ten years, they have shown a CAGR of ~9.1%, and that is the growth number that I will use as the basis for my dividend forecast. I'll use 9% as a best case, 7% as a mediocre case and 4.5% dividend growth as a catastrophic case. Even under the most conservative... Read more