Friday, February 17, 2012

Stock Bought: GIS

Today I bought shares of General Mills (GIS), one of the largest food companies in the world. Its well-known brands include Betty Crocker, Cheerios, Green Giant, Pillsbury, and Yoplait. The company holds the No. 1 or 2 spot for retail sales in many food categories in the U.S. market.

GIS is a good dividend-growth stock. The company (and its predecessor firm) has paid uninterrupted dividends for 113 years and increased its dividend for 8 consecutive years, with a 5-year dividend-growth rate of 11.1%. Incredibly, during those 113 years the company has never reduced its dividend. To me, that is a strong signal that the dividend is a top priority for management.

The stock dipped nearly 4% today after the company lowered its earnings guidance for its fiscal third quarter, citing softer U.S. demand. However, I am not overly concerned by this news. Even if there is a slowdown in earnings growth in the U.S., I foresee much of the future earnings growth coming from overseas, as is the case with many companies that sell consumer staples.

I bought 25 shares of GIS at the price of $38.19 per share, which is less than the price of my existing position, so I was able to average down. I now have a total of 70 shares at an average price of $39.00 per share, giving me a 3.13% yield on cost. At the current dividend rate, I can expect to receive quarterly dividends of $21.35, compared with the $13.73 I was getting before this purchase. GIS will now contribute a total of $85.40 to my annual dividend income.

Incidentally, GIS is one of only two stocks in my portfolio that I am currently able to average down on. The other stock is NSC, but I just added to my position a few weeks ago, so I have decided to hold off on further increasing my position for the time being. However, if it drops even more, then I will likely be compelled to make another purchase.

The market's year-to-date performance has made it increasingly hard to find good deals, but hopefully there will be a pullback in the next few weeks. Market timing is difficult, though, so my plan is to try to make regular monthly purchases and take advantage of whatever opportunities are available at the time. Right now I have enough cash on hand to make one more purchase in February.


  1. Nice buy there. GIS looks pretty solid. Not the cheapest stock around, but it's hard to find value in this market. Debt is manageable, and the expansion internationally leaves a lot of room for growth. Good stuff!

    Best wishes.

    1. Hi Dividend Mantra,

      I agree it is not the cheapest stock, but I think it is close to fair value and should do well in the long run. It is indeed hard to find good undervalued stocks in the market right now. Hopefully the situation improves at some point this year.



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