SYSCO Corporation: Dividend Stock Analysis

SYSCO Corporation (SYY), through its subsidiaries, markets and distributes a range of food and related products primarily for foodservice industry.

SYSCO Corporation is a dividend champion as well as a component of the S&P 500 index. It has been increasing its dividends for the past 38 consecutive years. For the past decade this dividend growth stock has delivered an annual average total return of 6.20 % to its shareholders.

At the same time the company has managed to deliver an 11.20% average annual increase in its EPS since 2000. For the next two years analysts expect EPS to increase to $1.81 and $1.92 respectively. The main problem for the company right now is the slowdown in sales at US restaurants, which account for more than 60% of revenues for this food distributor. Other than that the growth prospects for the stocks exist not only through internal growth but also through acquisitions as well. Building regional distribution centers and better inventory management are two of several initiatives that the company is applying for internal growth. International expansion could also be another opportunity for Sysco.

The returns on equity have increased slightly over our study period to a very respectable 30.80% in 2009.


Annual dividend payments have increased by an average of 20.30% annually over the past 10 years, which is much higher than the growth in EPS. Some of it came from stock buybacks and some of it was a result of expansion in the dividend payout ratio.

A 20% growth in dividends translates into the dividend payment doubling almost every 3 and a half years. If we look at historical data, going as far back as 1975, we would see that Sysco has indeed managed to double its dividend payment every three and a half years on average.

Over the past decade the dividend payout ratio has more than doubled to 65% in 2008. While the dividend is well covered based off current cash flow/share, the company would most probably have to slow down or stop dividend increases until earnings growth picks up again. The stock buyback program could also be put on hold as a result of this as well. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

I believe that SYSCO Corporation is attractively valued with its low price/earnings multiple of 14, as well as an above average dividend yield at 3.80%. The high dividend payout ratio makes this otherwise great stock a hold for the time being however. I would only consider investing in Sysco at this time as part of a dividend reinvestment program.

Disclosure: Long SYY

Comments

[Walt17:]

Although I am in general agreement, I think looking at a 10 year dividend history can be deceptive. I am more concerned with the more recent history. Over the last 5 years SYY has shown an average dividend increase of appoximately 13.5%. Still very good, but not 20%.
Long SYY.

Oct 09 10:10 AM

[granger:]

thanks for the artilce

Oct 09 02:42 PM

[granger:]

article, there that looks better


On Oct 09 02:42 PM granger wrote:

> thanks for the artilce

Oct 09 02:43 PM

[cosimdm:]

I have owned Sysco in the past and have seen it's price go nowhere. I like the didvidend, but I would like to see a litttle price action after 10 years. I sold it.

Oct 09 03:05 PM

[jepittman:]

The lack of price performance is indeed frustrating and I suspect many investors have understandably reached the same conclusion as you. I believe that much of this is the result of anything consumer related being scorned by the vast majority of analysts and pundits. Its been pretty conventional wisdom for awhile now. Sometime within the next few quarters unemployment will start falling and consumers will start feeling better. One of the first things people do when they regain their financial confidence is go out to eat. It is a small ticket luxury virtually anyone can enjoy. I'm not suggesting you will get rich owning this and there are a lot of good investment opportunities out there but frankly there does not appear to me to be much downside risk in SYY at ~$25. In the heat of the recent panic it barely dipped below 20 and the market is up a lot more than SYY. The consumer will be back, the question is when - and SYY pays you a nice dividend that will likely grow while you wait for him.


On Oct 09 03:05 PM cosimdm wrote:

> I have owned Sysco in the past and have seen it's price go nowhere.
> I like the didvidend, but I would like to see a litttle price action
> after 10 years. I sold it.

Oct 11 11:37 AM