Published Fri, 08 Nov 2019 18:13:56 -0500 on Seeking Alpha
Featured Stock for October: General Mills
General Mills (GIS) is the featured stock in October’s Safest Dividend Yields Model Portfolio.
GIS has grown revenue by 1% compounded annually and after-tax operating profit (NOPAT) by 4% compounded annually over the past decade. Trailing twelve month NOPAT is up 17% over the prior TTM period. NOPAT growing faster than revenue is driven by GIS’ rising NOPAT margin, which has increased from 10% in 2009 to 14% TTM.
Figure 1: GIS’ Revenue and NOPAT Since 2009
Sources: New Constructs, LLC and company filingsGIS’ Free Cash Flow Supports Dividend Payments
Since 2015, GIS has increased its annual dividend from $1.67/share to $1.96/share, or 4% compounded annually. This dividend payment has been supported by GIS’ cumulative free cash flow. With the exception of 2018, when General Mills acquired Blue Buffalo Pet Products, the company consistently generates the free cash flow necessary to pay its dividend, per Figure 2. Excluding 2018, GIS generated $8.7 billion (29% of market cap) in FCF while paying $4.4 billion in dividends since 2015.
Figure 2: GIS’ FCF vs. Dividends Since 2015
Sources: New Constructs, LLC and company filings Companies with strong free cash flow provide higher quality dividend yields because we know the firm has the cash to support its dividend. On the flip side, dividends from companies with low or negative free cash flow cannot be trusted as much because the company may not be able to... Read more
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