This article was originally published on Kiplinger – https://www.kiplinger.com
Market value: $25.8 billion
Dividend yield: 4.3%
General Mills (GIS, $44.98) sells a diversified mix of packaged meals, snacks, cereal, yogurt, baking products and more under several well-known brands, including Cheerios, Yoplait, Pillsbury, Nature Valley and Betty Crocker.
With a track record of paying uninterrupted dividends for more than 115 years, General Mills has long been a favorite holding in conservative income investors’ portfolios. Besides the company’s dependable payout shareholders have also enjoyed healthy dividend growth, including 9% annualized dividend increases over the past five years.
Unfortunately, dividend growth is unlikely to resume for at least the next year, if not longer.
Despite the company’s strong market share positions in core food categories Morningstar equity analyst Sonia Vora thinks the company’s “exposure to the center store, which has faced declining traffic the past several years as consumers increasingly shop for fresher alternatives in the perimeter, has pressured its brand intangible assets.”
The company has struggled to achieve meaningful organic sales growth in recent years as consumers’ increasing preference for fresher, healthier foods has pressured several of General Mills’ core product categories.
To help accelerate growth, in February 2018 the company announced plans to acquire natural pet food company Blue Buffalo for $8 billion. This deal significantly increases General Mills’ leverage ratios, so the company is very focused on restoring its balance sheet to maintain its credit rating.
As a result, management suspended its current share buyback program and announced plans to maintain, rather than grow, its quarterly dividend. When combined with the headwinds General Mills faces in the center of the grocery store, shareholders shouldn’t expect any meaningful income growth for a while.