A Defensive Stock that Yields 3.3% for your Portfolio
Piyush is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The thing with food manufacturers and marketers is that the demand for their products is relatively stable, as their products cater to the daily needs of millions. General Mills (NYSE: GIS) which is one of the world’s largest manufacturer and marketer of consumer foods, is one such company. It has a 150-year history, and is well-diversified with its presence in more than 130 countries. The company also has a wide range of products, with more than 100 brands under its name.
General Mills has been consistently paying dividends for the past 25 years. The current yields stands at a healthy 3.34%, and the stock can make it into any income portfolio. Additionally the company recently raised its dividend payout to $0.33 and repurchased 7 million of its shares from the market.
This year, General Mills acquired Yoplait International, Food Should Taste Good, Brazil-based Yoki Alimentos S.A and Indian-based Parampara Foods. Both Brazil and India have the fastest growing middle class populations in the world, and a presence in these countries would be a huge positive for the company.
On the back of these acquisitions, General Mills was able to report stellar financial performance. Quarterly revenues stood at $4.05 billion, which rose 5% from the year ago quarter. Earnings beat the market estimates, with EPS at $0.66, up 3% from the same period last year.
It's the company's overseas that saw the most rapid growth. Revenue from the Chinese division is increasing to the tune of 19% each year. Over the next 3 years, management expects sales in China to increase by nearly 64%. Additionally, sales in Europe saw a 51% upside, along with a 28% jump in Canada, and 20% plus growth in Asian countries.
We can see in the table above that all these companies are trading at lower P/E valuations compared to the industry average. The P/S of Seneca is unusually low, and so is its gross profit margin. Except for Seneca all three companies have higher gross profit margins, as compared to the industry’s average. To top it all, General Mills enjoys 26% returns on its equity and yields 3.34%, retaining 52% of its earnings. Analysts expect the EPS growth of General Mills to be around 7.7% for the next 5 years, and 8.24% over the next year.
The key growth driver for General Mills is its exposure to emerging nations. The per capita income of people in countries like India, China and Brazil is increasing rapidly. General Mills has risen nearly 60% in the past 3 years and its EPS has and average growth rate of 13.3% over the same period. The stock has a low beta, good fundamentals and has weathered the test of time. For investors looking for steady growth in a defensive income portfolio, General Mills would make a great investment choice.
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