Why General Mills is a Solid Dividend Stock for the Next 20 Years
General Mills is a great stock that will provide value for decades to come. Many people wonder why General Mills has been able to produce such consistent returns since it first started being traded in 1979. The truth is that General Mills has a sustainable business model and consistent earnings that span back decades. Part of the competitive advantage that General Mills has is the piece of “real estate” that it owns in its customer’s heads. Many people fail to realize that consumers have grown up with these brands since they were young children. Now that they are adults, they feel the need to continue to purchase the cereal for their children. This is something that modern marketing can’t buy. It takes the cultivation of years and decades of being inundated with a product to make it have this kind of impact.
General Mills has some of the top brands of cereal that you have come to know and love. Take, for example, a brief look at their portfolio of recognizable cereals. This list includes: Cinnamon Toast Crunch, Reese’s Puffs, Golden Grahams, Cheerios, Trix, Honey Nut Cheerios, Lucky Charms, Cocoa Puffs, and still many more. These are many of the classic cereals that kids have grown to know and love over the years. By owning a piece of the consumer’s mind, General Mills has been able to produce reliable profits in a time when there has been much volatility throughout the market. This answers the question of why General Mills is a solid dividend stock for the next 20 years. It provides a consistent product and a consistent profit for its investors.
By taking a look a look at the financials of General Mills, it is clear that it is a great business that can provide a strong return on capital. The company has a P/E ratio of 20.54 as of this writing. That means that the price it trades at is about 20 times what it earns dollar for dollar. Lower P/E ratios tend to be better depending on what stage a business is in. Some businesses have high P/E ratios when they are in the growth period of the stock. This means that they are rapidly expanding and have not necessarily focused on turning a profit. An established company like General Mills is not in the growth phase, so this is not a concern when it comes to this stock. A P/E ratio of 20.54 is fairly low and is representative of the consistent gains that have been made by General Mills over the preceding decades.
The next important aspect of General Mills is the dividend. Paid out quarterly, the dividend currently yield between 3.8% and 4.8% of the stock. This means that throughout the year, the investor will see a total return of about $2 at the stock’s current price. This does fluctuate from year to year, but General Mills has been serious about providing the shareholder value throughout the decades. This is another reason why General Mills is a solid dividend stock for the next 20 years. The company continues to provide value and take care of its investors. As long as people still continue to consume breakfast cereal, then General Mills will continue to have a large market of people to sell to. This results in dividends for the shareholders and a consistent profit for all who invest in the company. Great businesses like this are hard to find, so it is important that investors take them seriously.
Another reason to be bullish on the prospects of General Mills is to see how the dividend yield has trended upward in the preceding years. In fact, the dividend has nearly doubled since 2011. This proves that the company has great leadership and wants to provide value for shareholders. However, there has been some fear among investors that the dividend could be susceptible to going away. One of the biggest problems with the General Mills model is that is relies on products that could be duplicated by off-brand cereals. This has not become a concern until more recently when household staples faced competition from new grocery models that sought to upend the system. Some of these grocery stores, such as Trader Joe’s and Aldi, provided a new way to shop for groceries that the consumer had not yet seen. These stores created their own products and didn’t use the household staples that had been a fixture on other grocery stores. It is true that consumer habits do seem to be changing in the regard. Therefore, it is something that any investor should be aware of.
Another challenge that General Mills will face in the coming years is the change to consumer tastes regarding the cereals that they purchase. Many of General Mills products are seen as unhealthy, which could be a turnoff for consumers in the future. General Mills has sought to combat this by adding healthier cereals into their product mix. By adapting to consumer changes quickly, General Mills will continue to be able to turn a strong profit on capital invested. It is important for the company to continually grow and adapt in order to meet changing consumer tastes. There is nothing that can kill a business faster than a company that is unable to see which way that the wind is blowing.
Overall, if you are interested in investing in General Mills over the long term, then you will likely be in good shape. This is a company that is very adaptable and well run. Most importantly, it cares about its shareholders and is committed to providing a dividend that will last for years and decades to come. The dividend, combined with the growth of the company, will likely provide a more than satisfactory return for the average investor. Many people do not understand that there can be a large amount of volatility in the cereal market. The truth is that General Mills has weathered the storm better than most. It is for this reason that the value investor should continue to look at and invest in General Mills for years to come. It is truly a company that is unmatched in many aspects.