Investing in companies that produce and market well-known brands that are regularly consumed by millions of people every day can be a winning strategy for dividend investors. Such businesses typically benefit from steadily rising profits, which can support a generous and growing payout to shareholders.

With a $48 billion market capitalization, General Mills (GIS -0.94%) is a just such a company and has grown to become a leader in the packaged foods industry. But is it a buy for yield-oriented investors?

Let's dig into General Mills' fundamentals and valuation to get an answer.

General Mills saw tremendous growth in the quarter

General Mills' product portfolio consists of more than 100 brands and many are sold in multiple countries. These brands range from Gold Medal flour to the baking mix Bisquick to Cheerios cereal to Nature Valley granola bars to Blue Buffalo dog food to dozens of others.

General Mills' reported flat volume growth for the fiscal 2023 third quarter (ended Feb. 26) but a 14% bump in product prices helped raise its quarterly net sales by 13% year over year to $5.1 billion. For context, the net sales increase was a tad more than the 12% growth rate posted by Kellogg (K -1.74%) in its most recent quarter.

General Mills' products are used by millions of consumers around the world daily, which builds a great deal of inelasticity into its pricing. As a result, General Mills' product volume remained flat for the quarter, despite passing on double-digit price hikes to consumers. This growth catalyst more than offset the negative 1% foreign currency translation headwind in international markets that the company faced due to the stronger U.S. dollar.

General Mills' non-GAAP (adjusted) diluted earnings per share (EPS) surged 15.5% higher over the year-ago period to $0.97 in the third quarter. The company's expenses increased about as fast as net sales, which is why net margin remained unchanged at 11.3% during the quarter. Thanks to its share repurchases last quarter, General Mills' adjusted diluted EPS growth was able to exceed net sales growth.

Strong demand for the company's products and the potential for more bolt-on acquisitions should bode well for its future. That's why analysts believe that General Mills' adjusted diluted EPS will compound by 7% annually over the next five years.

A person shops at a supermarket.

Image source: Getty Images.

A well-covered and market-topping payout

General Mills' 2.6% dividend yield is significantly above the S&P 500 index's 1.7% yield. And income investors can be confident in the company's ability to sustain this dividend. That's because General Mills' dividend payout ratio is poised to come in at just above 51% in the current fiscal year. Such a low payout ratio allows the company to retain the funds needed to expand its operations, execute share buybacks, and repay debt.

A manageable payout ratio also allows for significant dividend growth each year. The payout ratio should allow for regular dividend growth each year. Over the past decade, General Mills averaged 6.2% growth on its dividend, including a 15.9% annual bump this past year.

The stock's valuation is fair

General Mills' stock price has soared nearly 30% in the past 12 months, which is well above the 1% average gains of the packaged foods industry. But even with this monstrous rally, the stock's valuation is still within reason for its quality.

General Mills' forward price-to-earnings (P/E) ratio of 19.1 is only moderately more than the packaged foods sector average of 16.7. On a peer-to-peer basis, the stock is a better deal than it first appears to be. Kellogg trades at a forward P/E ratio of 15.4. But its annual earnings growth outlook of 2.4% is far inferior to General Mills' growth potential. This makes General Mills an interesting pick for income investors seeking solid growth prospects at a reasonable valuation.