Okay, this company has been in my portfolio for many years. It served me well for much of that time — holding up better during the Great Recession than most of my stocks. But during the last couple of years, it has pulled back. Buying opportunity? Or another instance of Ted chasing a bad stock down?

At today’s valuation, I say buying opportunity. General Mills, like most consumer staples companies (and the packaged food industry in general) faces headwinds. Consumer choices have made the market tougher for cereal, canned soup and yogurt sales. Jim Cramer a while back said on his show that the company’s brands were “tired.” These are real challenges, but we’ve seen old brands make comebacks before, and good companies adapt to changing consumer tastes.

Oh, by the way, General Mills currently sports a 4.6% dividend yield (and a payout ratio of a little over 50%). The trailing P/E ratio is just over 12%. The company also has a manageable debt load. And by the way, GIS and its predecessors have paid dividends without interruption for 120 years.

On the cautionary side, GIS had a 3.6% short interest in mid-October, so some investors are still betting the stock is overvalued.

MorningStar likes the company, calling it one of the analysts’ top picks amid beaten down consumer staples. The company noted that some analysts are skeptical about General Mills’ ability to boost profits through its recent acquisition of pet food company Blue Buffalo.

“We’re more optimistic about the firm’s ability to reinvigorate growth through reinvestment in its brands, and to integrate and grow Blue Buffalo by following the same playbook it did with Annie’s, which it acquired in 2014,” the MorningStar report said.

 

 

Jack Hough, one of my favorite investment journalists at Barron’s, is urging his readers to consider selling high-dividend, low dividend growth stocks. That’s right, he suggests that I think about selling my portfolio, since dividend earners is my focus. And I like firms with a high payout ratio. 

That’s a simplistic interpretation of “It’s Okay to Panic about the Stock Market” story online this week. His thesis is pretty simple. Investors have been starved for yield for more than a decade. Interest rates are rising, and the returns on bonds and bank savings accounts are beginning to look more palatable. Even with the recent dip, equities seem pricey by historical standards.

But as Hough points out, over time, equities that pay dividends historically have outperformed bonds. Here’s the money quote:

“Stocks remain likely to outperform both bonds and cash over time, because that’s what they do. Stocks represent companies, and bonds and cash represent the cost of financing, and companies wouldn’t exist if not for their ability to out-earn the cost of financing over time. So investors who don’t have a history of panic-selling their stocks during market downturns should stay put.”

He notes that analysts at Goldman believe stocks can continue to rise as long as the 10-year Treasury yield does not exceed 4%, and Bank of America thinks even a 5% 10-year yield might not unravel the bull market.

As for me, the volatility in the market hasn’t spooked me too much. I added a small bit of CWEN and UBS to my portfolio in the last week, nibbling up a few shares on the dip during last week’s sell off.

I hate to be an alarmist, but Salon has an article by Bob Hennelly about what could spark the next financial crisis, and growing global debt burdens are the suspected culprits. I was particularly intrigued by how much lower credit rated, high yield corporate debt has grown recently in the U.S. As the article points out, a lot of this burgeoning debt seems predicated on the assumption that interest rates will remain low for a long time to come or that earnings growth will help firms pay their pay out of debt as rates rise. There doesn’t seem to be much evidence that either of those bets is a good one.

One stock in which I have a stake that I’ll be watching carefully: AT&T. The company’s distinguished history and attractive dividend are tempting. But the deal to buy Time Warner and it’s content assets required the company to take on a lot of debt. Hopefully this will pan out better than the AOL-Time Warner merger did.

 

 

Looking for an income earning industrial stock to add to your portfolio? I’d recommend taking a good look at Fastenal, a maker of — as the name suggests — fasteners used in construction and manufacturing.

I don’t own Fastenal in my personal portfolio (though a company in which I have a stake has some holdings in a managed investment account). My thesis is that this could be an opportunity to buy the stock on the dip.

Fastenal announced strong earnings growth last week, but concerns about pressure on its profit margins from rising freight costs as well as concern about what impact a trade skirmish with China could have on the company pushed shares down. News reports said the stock fell 7% on the day the company released earnings.

Now, I’ve made the mistake of chasing stocks down before, buying impatiently each time the share price takes a hit. But Fastenal is a story I like: the company posts solid earnings growth, but the stock is punished by jitters about trade and inflation. I’m not downplaying those concerns, but this is a company with growing revenue and profits, a strong balance sheet, and it pays a dividend just about 3%. Last week, shares ended at $52, down from a recent high of about $61.

It’s a name I plan to keep an eye on, especially in a world where many of the larger, mega-cap industrial names seem overbought to me.