SYSCO: Dividend Stock Analysis

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 |  About: SYSCO Corporation (SYY)
by: Dividend Growth Investor

SYSCO Corporation, through its subsidiaries, engages in the marketing and distribution of a range of food and related products primarily for foodservice industry in the United States and Canada.

SYSCO is a dividend champion as well as a component of the S&P 500 index. It has been increasing its stock dividends for the past 37 consecutive years. From the end of 1997 up until August 2008 this dividend growth stock has delivered an annual average total return of 11.60 % to its shareholders.

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At the same time the company has managed to deliver a 14.40% average annual increase in its EPS since 1998.

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The ROE increased from the 25% to over 40% before falling down slightly to 33% in 2007.

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Annual dividend payments have increased over the past 10 years by an average of 17.90% annually, which is higher than the growth in EPS. Using the rule of 72 an 18% growth in dividends translates into the dividend payment doubling almost every four years. If we look at historical data, going as far back as 1989, SYY has indeed managed to double its dividend payment every four years on average.

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If we invested $100,000 in SYY on December 31, 1997 we would have bought 8780 shares (Adjusted for two 2:1 stock splits). In March 1998 your quarterly dividend income would have been $395.10. If you kept reinvesting the dividends though instead of spending them, your quarterly dividend income would have risen to $2279 by July 2008. For a period of 10 years, your quarterly dividend payments would have increased by 389%. If you reinvested it though, your quarterly dividend payments would have increased by 477%.

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The dividend payout ratio has slowly increased from upper teens to mid twenties over our study period. A lower dividend payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

I think that SYY is attractively valued with its low price/earnings multiple of 17.50 and low dividend payout ratio as well as an attractive dividend yield at 2.80%. The current dividend yield is pretty attractive based off historical standards. The current P/E is also attractive relative to what it has been over the past decade.

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Disclosure: Author does not own shares of SYY.