General Mills: Benefits of Owning Mature Companies

We wrote a post on the great American company Proctor & Gamble (P&G) and all its great global brands.  Another great American company is the food company – General Mills.  I saw a post recently by Joshua Kennon that discussed how this company’s stock price has done over the last quarter century and thought it was very telling for investors.

To recap, General Mills is omnipresent  in most American homes and overseas homes as well.  As the company website states,

 A box of Cheerios sits on the kitchen table.

A cup of Yoplait yogurt rests on the refrigerator shelf, and the sweet aroma of Pillsbury Cinnamon Rolls fills the room.  It’s breakfast time in America.  But whether it’s morning in the U.S. or evening in Paris, consumers worldwide turn to General Mills products.

  • Jus-Rol pastry in the United Kingdom.
  • Chicken prepared with Yoki Seasoned Cassava Flour in Brazil.
  • A special occasion treat of a scoop of Häagen-Dazs ice cream in dozens of countries.

General Mills Ice Cream Brand General Mills brands are known around the world for quality, beginning with Gold Medal flour in 1880. To this day, Gold Medal remains the No. 1 selling flour in the United States.   Several of their other brands also occupy the No. 1 or No. 2 market positions – from Pillsbury refrigerated dough to Green Giant  frozen vegetables, to Cheerios cereal and Betty Crocker dessert mixes.

How has the stock of this “boring” food company performed a little over the last quarter century?  The company’s stock price in 1987  was $29.93 and at the end of  2012 was $41.27.    So you are thinking, not that impressive after 26 years – right?  Let’s explore this stock performance further to uncover the hidden value of owning stocks for the long-term.

Let’s say you invested $100,000 in General Mills stock in 1987, and just left the money there – not even bothering to compound dividends as they were received.  What would have your investment be worth at the end of 2012?  You may be thinking that you just multiply the shares purchased at the $29.93 price (approx. 3,340 shares times $29.33) by the current price (2012 YE price) of $41.27 to arrive at $137,888 (3,340 times $41.27).  But that would miss the real value of owning mature company stocks.

You see –  the company has taken corporate actions on behalf of the owners (stock investors) over the last quarter century which would have resulted in the following value from that initial $100,000 investment:

Your initial $100,ooo investment would have resulted in the following:

26,720 shares in General Mills with a market value of $1,102,734 (additional shares due to stock splits)

10,020 shares in Darden Restaurants valued at $454,000.  (Darden is the company that owns and operates Red Lobster and The Olive Garden and was spun off to its owners as a separate stock)

cash dividends totaling $541,346 ($466,264 from GM and $75,082 from Darden)

So over $2 million from this one investment.

Two things to understand:  1) You would have had to maintain ownership throughout this entire time even when you were being told the crisis’ of the day was going to doom stocks – take your pick – Gulf Wars, Bird Flu,  and that only technology stocks would succeed, and 2) this extraordinary performance is not typical but if you invested in the entire markets you will capture these gems to help achieve the returns you would need for your retirement goals.

Now go enjoy a scoop of Häagen-Dazs ice cream as you thank the capital markets.

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About Dan Crimmins

Dan Crimmins, co-founder of Crimmins Wealth Management, is a financial coach and fee only financial planner. Have a financial question? ASK DAN

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