Packaged foods giant General Mills (NYSE:GIS) is often considered a stable stock for conservative investors. It owns a broad portfolio of well-known brands -- including Cheerios, Yoplait, and Haagen-Dazs -- and it's paid uninterrupted dividends for 120 years.

General Mills' stock has risen 12% over the past five years and generated a total return of 34%. Those gains were decent, but they trailed behind the S&P 500's 44% gain. Should investors stick with General Mills over the next five years, or will this stock keep underperforming the broader market?

A bwl of Cheerios with fresh strawberries.

Image source: Getty Images.

What happened over the past five years?

General Mills, like many other packaged food makers, has struggled with competition from healthier and private-label brands in recent years. General Mills also struggled with waning interest in its core cereal brands.

In response, General Mills divested weaker brands, bought new brands like organic food maker Annie's, and expanded into the premium pet food market with its acquisition of Blue Buffalo two years ago. It also refreshed its aging brands with new products like Blueberry Cheerios and Yoplait Go-GURT.

As its industry peer Kraft Heinz (NASDAQ:KHC) cut its prices to boost sales, General Mills hiked its prices to offset its lower shipments. General Mills' strategy was arguably smarter, since it buoyed its margins as Kraft Heinz's margins crumbled.

General Mills has struggled to grow its organic sales over the past five years, but price hikes and cost-cutting measures boosted its earnings -- even after it suspended its buybacks after its acquisition of Blue Buffalo in 2018.

Growth (YOY)

2015

2016

2017

2018

2019

Organic Sales

0%

0%

(4%)

0%

0%

Adjusted EPS*

4%

5%

6%

0%

4%

Source: General Mills annual reports. *Constant currency basis. 

What will happen over the next five years?

General Mills expects its organic sales to rise 1%-2% in fiscal 2020, which ended on May 25, and for its adjusted EPS to grow 6%-8% on a constant currency basis. It also expects its e-commerce sales to top $1 billion -- or nearly 6% of its annual revenue -- during the year. That percentage could continue rising as it deepens its online partnerships.

Two scoops of ice cream on a plate of fresh berries.

Image source: Getty Images.

The COVID-19 crisis throttled foot traffic at its Haagen-Dazs stores across Asia, but it easily offset that drop with robust sales of its packaged foods as shoppers stocked up on stay-at-home items.

That temporary boost could fade after the pandemic passes, and it could still run out of room to offset its slower shipments with higher prices. Private label and healthier brands could also keep pulling away fickle consumers.

On the bottom line, General Mills will continue to execute its "Holistic Margin Management" plan, which cuts costs by continually installing energy-efficient technologies, optimizing the company's distribution network, and cutting packaging costs across its supply chain. These granular moves should stabilize its earnings growth over the next five years, even if it struggles to grow its organic sales.

General Mills currently pays a forward yield of 3.2%, but it froze its dividend hikes with its buybacks two years ago. It might raise its payout again as its savings plans kick in, but its top priority will be to reduce its long-term debt of $11.6 billion.

Analysts expect General Mills' annual earnings to rise at an average rate of about 6% over the next five years. That's a decent growth rate for a stock that trades at just 17 times forward earnings, but investors probably won't pay a premium for General Mills until it generates more consistent organic sales growth by launching fresh products or expanding newer brands like Blue Buffalo.

Still a great stock to buy and hold

General Mills has traditionally been a good defensive stock during market downturns, and will likely remain one over the next five years. It trailed the market over the past five years as the bulls remained in control, but it could still stay ahead of the S&P 500 in a tougher bear market.