I investigate whether General Mills is worth a buy at this time. In the end I conclude it would not be the worst time to buy shares. The company is trading at historical valuations levels of about 19x earnings. I’m hesitant to expect market outperformance at this point, sales are currently declining. Sales would need to shore up before we can expect stellar earnings growth. In addition, the company has $4B in debt coming due in the next few years that will need to be reissued. Based on cash flow after dividend payments, full debt repayment seems unlikely.
Buying now secures about a 3.3% dividend yield, which is much better than what the market is currently providing, just expect some muted dividend growth until sales pick back up. The best time would have been to buy shares a few years ago when the company had been long term out of favor, trading around a multiple of 15 before picking up the past few years. 2016 saw large scale overvaluation which is visible on any stock chart. Again, with shares at a 52 week low, they look reasonable but hardly a steal.
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Q: What is the biggest investment risk you’ve taken, and has it paid off?
A: The biggest investment risk I have taken was investing in a “Canroy” called Harvest Energy Trust (ticker was HTE). It was a small oil and gas trust with both upstream and downstream operations.
It was one of the first stocks I purchased when I started working. This would have been in 2008 during the financial meltdown. I had saved up a little bit of money, exclusive of my 401(NYSE:K) money, and put about 50% of the cash I had into it.
The stock had an extraordinary yield at that time in the mid-teens in 2008. Being a novice investor, this was far too much to pass up. The price was rapidly falling on the stock, and I made subsequent purchases to average down my cost basis. That’s how I ended up with this one small oil player taking up so much of my capital.
The company was bought out in 2009 by Korea National Oil Corporation and I managed a very small capital gain. The whole ordeal did not last very long, less than a year – I actually have trouble tracking down the records from that time frame. I’d have to dig through old paper tax records; the broker I used I have not used in several years.
Now, this was risky for several reasons. Firstly, this one company was a large part of my portfolio. This is something I would never do today. Secondly, it was very much a niche player, a specific oil trust not a large company with decades of a proven track record. Thirdly, my financial understanding was nowhere near what it is today. I suspect if they had not been bought out, they probably would have cut their dividend – it was simply too good to be true.
On the plus side, I did receive several quarters of that high dividend yield, which was taxed at qualified rates. Like I mentioned, I already received a small capital gain – in retrospect, this was probably a bailout that I did not recognize until now. What the experience did also instill in me is a love of dividends. It would not be for several years that I would find my way back into the dividend realm, but the seed was planted. Eight years later, I have a substantially larger and well diversified portfolio of quality dividend payers. In small part, I have to thank Harvest Energy Trust for that.
I’m quite honored that I was asked to do the interview for Seeking Alpha. I love writing, documenting my progress and then sharing that with the community. I hope to be able to do more of these interviews in the future.
Check out my latest article on Seeking Alpha covering Kellogg. The stock is near a 52 week low and offers slow but steady growth. I’ll have 3 other parts covering some other big food names near their 52 week lows also.
I consider it to be a hold and using Custom Stock Alerts I’ll be keeping an eye should the price drop further. The company has a fair amount of debt and sales are currently declining. Through cost savings initiatives the company should be able to drive moderate single digit earnings growth.