Investors in General Mills (NYSE:GIS) are likely ecstatic after a 14% rise since the beginning of the year — but they’d be wise to take some profits off the table.
A couple of months ago, I wrote about how rock-bottom interest rates have made dividend stocks the hottest thing on Wall Street — and that’s still true. As I said at the time, don’t settle for a measly 1% return in a savings account or CD when you can get a 3%, 4% and even more in reliable dividend yield … and strong potential for capital appreciation if you pick the right stock.
I shared seven stocks with you that met my criteria for dividend stocks, including metrics like cash flow to make sure the dividend is sustainable. General Mills made the list because of the company’s history of steady dividends and solid yield, plus the constant demand for their consumer staples products, such as cereal.
To be clear, I don’t think there is something wrong with General Mills. But the stock has run quite a bit, meaning it’s prudent to take profits. And besides, further capital appreciation might be tricky given rising commodity prices, which will increase the company’s production costs.
Last summer’s historic drought devastated the nation’s corn crop and drove prices to record highs. Higher costs impact General Mills’ profit margins, and retail cereal prices have actually come down a bit, which means GIS eats even more of the cost in their margins.
Looking ahead, I see enough concern about commodity prices to make me leery of staying in GIS right now. There are also enough weather issues on the horizon to add to the potential headwinds for General Mills.
I continue to like the company and management, and when inflationary pressures subside, I would likely consider it a buy again — especially during pullbacks in broader market weakness. But for now, I would be content to lock in gains from the run we’ve had. There are better places to deploy your capital at the moment.
As of this writing, Hilary Kramer did not hold a position in any of the aforementioned securities.