The Board of Directors of General Mills (GIS) declared a 4.3% increase in the quarterly dividend to 49 cents per share. This raises the annual dividend by 12% to $1.92 per share compared to $1.72 earlier.

The dividend will be paid on Feb 1, 2010 to shareholders on record as at Jan 11, 2010. This is the second time the company has raised its dividend during fiscal 2010.

The company’s strong balance sheet and its ability to generate healthy cash flow allow it to increase shareholder value through higher dividends. As on August 30, 2009, General Mills had $712 million in cash and cash equivalents. The debt-to-capitalization ratio stood at 51.0%.

The company’s business model throws off substantial amounts of free cash flow. General Mills generated operating cash flow of $275 million during the first quarter of 2010, which was up 22% compared to the prior-year levels.

Apart from increasing dividends, General Mills uses its financial strength to expand its business. The company continues to invest in product innovation and increased consumer marketing, thereby fueling strong sales for its brands, which offer consumers high quality, nutritious and convenient foods at good values.

Furthermore, based on the strong performance in the first quarter of 2010, management had raised its earnings guidance. Annual earnings are now expected in the range of $4.40 to $4.45 per share. The previous expectation was in the range of $4.20 to $4.25, reflecting a 5% increase.

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