Here’s a simple way to think about General Mills (NYSE: GIS) right now: It makes the Cheerios in your pantry, the Pillsbury biscuits in your fridge, and the Blue Buffalo in your dog’s bowl, yet its stock is priced as if people are about to stop buying all three.
Shares closed at $34.60 on Nov. 10, about 30% below their 52-week high of $49.59 and about 32% lower than five years ago. At that price, the $2.44 yearly dividend works out to a dividend yield of about 7%, so every $1,000 invested pays roughly $70 a year.
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That’s a lot of income from a company that has paid a dividend without interruption for 128 years, counting the business it grew out of. A record that long, at a price this low, is why I think this is the rare kind of setup worth acting on.
The cereal aisle went quiet
There’s been a slump, and it has real causes. Grocery bills have stretched families thin, and General Mills itself describes a “challenging consumer backdrop” that will keep its food aisles growing slower than usual this year. Last year, the company responded by lowering base prices on products that had gotten too expensive compared to cheaper options. That helped steady how much shoppers bought, but it squeezed profit at the same time that costs for grain, freight, and packaging kept climbing.
The latest quarter shows that squeeze. Organic sales, which exclude businesses bought or sold, were flat, and adjusted earnings per share fell by 13%. For the full year, management expects adjusted earnings per share of $3 to $3.20. That’s a down year, but not a broken company. Investors are paying about 11 times those expected earnings, a low price-to-earnings ratio for a food company whose brands sit in nearly every kitchen.
The fix is already on the shelf
What gives me conviction is what the company is putting in front of shoppers. Its protein cereals, led by Honey Nut Cheerios Protein, now generate about $200 million in retail sales and are growing at a double-digit rate. Lucky Charms, Reese’s Puffs, and Cinnamon Toast Crunch reached more households and grew retail sales after declining last year. Pillsbury reworked 70% of its canned dough line with more cinnamon, more icing, and flakier layers, and retail sales stabilized after eight straight quarters of decline.
