Does General Mills Deserve Higher Multiple?

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Why are investors suddenly willing to pay 18 times earnings for General Mills?

It's a conundrum and one which Jim Cramer finds vexing.

"Last year investors were only willing to pay 15 times earnings and back in 2009 it was 12 times earnings," explained the Mad Money host.

In other words, investors have grown more willing to pay a greater premium for General Mills stock today than they were in 2012.

That may be typical of a growth stock, in which the Street rewards explosive sales potential – but General Mills is a very mature company. It's not facing an exponential increase in sales.

Therefore, this kind of premium doesn't seem warranted. – that is, unless there's something else at play.

Cramer concedes it could be stock specific – that CEO Ken Powell appears to be successfully navigating a slew of headwinds including grain inflation, higher gas prices and cut throat competition. The Street may just like his performance.

However, the more likely explanation, Cramer says is something else.

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And that is General Mills has consistently paid out an attractive dividend – and the market is willing to reward a company for that.

"I think that's the key to the equation," Cramer said. "The world is starved for yield, because of the low interest rate environment."

Therefore, investors are willing to pay up for dividend yield.

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"The reason we can go from 15 times earnings to 18 times is precisely because the dividend tax advantage unexpectedly stayed low and at the same time Bernanke committed to low rates until 2015," Cramer said.

Investors are chasing return – plain and simple – and in turn, the chase for return is driving gains, not just earnings.

And to take that one step further, Cramer doesn't think the phenomenon is limited to General Mills. He thinks it's a 'marco' phenomenon – one which can be extrapolated to the larger consumer staples sector.

"I expect to see similar expansions in other soft goods company yielding at least 3%," he said.

Call Cramer: 1-800-743-CNBC

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