General Mills: 120 Years of Commitment to Its Dividend

Erin Lash: General Mills pays one of the most attractive dividends in the packaged food landscape with a yield of nearly 4%, towering above the less than 3% its peers chalk up. From our vantage point, Generals Mills' commitment to returning excess cash to shareholders is evident in the fact that it has paid an increasing or stable dividend to shareholders over the last 120 years, and we expect that it will continue to grow its dividend at a high single-digit rate annually over the course of our explicit forecast, which is in line with its historical average.

From our vantage point, the fact that General Mills has entrenched itself within retailers' supply chains and is a valued partner in retailer efforts to drive traffic in their outlets should ensure that it continues to generate stable and growing profitability which it can then return to shareholders. Our forecast calls for General Mills to return 60 to 70% of its annual earnings to shareholders in the form of a dividend.

That said, General Mills is not without its own headwinds facing the business. For one, the firm continues to face intense competitive pressures from other branded players, lower priced private-label alternatives, as well as smaller niche operators in the packaged food space. We think the firm's commitment, however, to investing behind its brands--both in the form of value-added product innovation as well as subsequent marketing support--should ensure that it is able to withstand these challenges.

Shares trade in line with our valuation, however, and we'd suggest investors await a larger margin of safety before building a position in the name despite the attractive dividend yield.