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Dividends and Deals in the Cereal Aisle

Wide-moat General Mills and Kellogg are both undervalued and offer mid-single-digit dividend growth.

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Erin Lash: While sales and consumption growth in the cereal aisle has languished over the past few years, we think investors would be well-served to indulge on the shares of the leading manufacturers in the space, namely wide-moat General Mills and Kellogg, both of which we view as undervalued.

For one, we think the market's confidence in General Mills' ability to restore top-line growth has faltered, considering continued softness in volume across the industry as well as skepticism around the acquisition of natural pet food company Blue Buffalo earlier this year. While the deal carries some inherent risk as General Mills enters a category in which it has limited experience, we remain confident in the firm's ability to efficiently integrate Blue Buffalo and extract cost synergies from combining these operations, as we expect it will lean on the experience gained when it added Annie's and others to its mix--leveraging its supply chain and distribution capabilities while largely leaving the acquired firm's operating model intact. 

Erin Lash does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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