In a market so turbulent and fragile, just coming out of one of the biggest recessions since The Great Depression, investors continue to look for safe stocks that can both increase their capital gain and pay out a regular dividend.
Did someone just say Sysco?
Oh, wait, that was me.
But in reality, Sysco (NYSE:SYY) is one of the strongest and most stable stocks in the United States. In fact, Fool.com named Sysco one of the top five stocks for a pessimistic investor. In other words, if you are one of those cautious traders that believe everything you touch will go bankrupt sometime in the next few years, Sysco is the stock for you. Trust the experts when they say it is safe.
Sysco describes itself as
the global leader in selling, marketing and distributing food products to restaurants, healthcare and educational facilities, lodging establishments and other cusomters who prepare meals away from home.
The company also supplies hospitals and hospitality companies with food delivery service.
For fiscal 2009, according to the Sysco website, the company reported almost $37 billion in sales and a net income of about $1.1 billion. Their earnings per share was $1.77 and their return on invested capital was 19%. Sysco’s 3.4% dividend is one of the highest in its industry. They have also continued to pay a dividend since 1970 – and recently increased the percentage for the 33rd consecutive year.
Before the recession, Sysco’s stock traded in the mid-fifites, and there’s no reason to think it can’t jump back up to that level in the new few years. Between 2004 and 2007, Sysco experienced a capital gain increase of almost 34% and paid back shareholders about 2.11 per share in that time period. That number will increase as they raise their dividend.
At the end of 2009, Sysco increased their profit margin by over 10% and also increased their net income by over 11%. Their revenue jumped by just under $400 million. Though their return on equity remained about the same, it’s slight increase coming out of the recession shows that it has huge potential to grow.
The only downside to Sysco seems to be their long-term debt. With almost $2.5 billion in debt, investors may be turned off to this number, even though they shouldn’t be. If you take a closer look at the financials, they have over $5 billion in current assets, over $3.1 billion of which is either cash or accounts receivables. With over a billion in annual net income, Sysco easily has the assets to pay back their debt in a dire situation. And with Sysco’s historical financial success, don’t expect any company to come down hard on the food delivery giant demanding their money.
Lastly, two of the best ratios, in my opinion, to judge a company’s long- and short-term survival chances are the current ratio and the acid test. With $1.69 of current assets per dollar of current liability – and $1.10 of non-PP&E current assets per dollar of current liability. Sysco – even when not counting some of their largest assets – is still extremely liquid and profitable.
Remember, no matter how bad the economy is, people need to eat. Take a chance on Sysco and cash in when the stock shoots up.
Disclosure: Author holds a long position in SYY