Sysco Dividend Stock Analysis
Eating is about as essential as it gets. And I like to fill my dividend stock investment portfolio with essential product and service companies.
So today, let’s fill up on the food service distributor Sysco. And, chow down on a dividend deep dive of this behind the scenes food industry titan.
They play a big role in what we eat outside the home. Along our way, we will see if we can take a bite out of the Sysco dividend.
Since I can’t think of any more puns right now, please note that this article includes an affiliate link. If you sign up with one of my preferred financial resources, I may receive a small sales commission. These commissions help offset the time and cost of running Dividends Diversify.
So let’s get on with our main course, a dividend stock analysis of Sysco. (Sorry, couldn’t help myself. Not enough sleep!)
COMPANY BACKGROUND
Sysco is a global leader in selling, marketing and distributing food and non-food products. Their primary customers are restaurants, healthcare facilities, educational institutions and lodging establishments.
The company is comprised of four business groups:
Broadline is the largest. It distributes a full line of food and non-food products to independent restaurants, chain restaurants, in addition to healthcare and educational facilities across the US.
Specialty meets the needs of customers looking for unique and differentiated produce, meat or seafood products.
International supports customer’s food and non-food product needs in 90 different countries around the world outside of the US.
Sygma focuses on the logistics of working closely with centralized corporate purchasing systems of large national restaurant chains
Sysco stock trades on the NYSE under the symbol SYY.
SYSCO DIVIDEND YIELD
Sysco stock pays an annual forward dividend of $1.56 cents per share. This is a 2.5% Sysco dividend yield at the recent price of $62 per share.
SYSCO DIVIDEND GROWTH RATE
| 1 Year | 3 Years | 5 Years | 7 Years |
| 9.1% | 6.3% | 5.2% | 4.8% |
Sysco’s dividend growth has been accelerating during the last 2-3 years after several years of sub-par dividend increases from 2011-2016. Their most recently announced dividend increase for 2019 represents another 8.3% hike.
Most noteworthy, the 2019 dividend represents the 49th consecutive year the Sysco dividend payout has been increased by management. Only a handful of companies have achieved this type of record. Companies who achieve 50 consecutive years of dividend increases are known as dividend kings. It is pretty safe to say Sysco will become a dividend king in the near future.
REVENUE
Sysco operates in a mature segment that is dependent on a healthy economy, solid consumer spending and economic growth. They are the largest food service distributor in the US. However, the market is very fragmented with many smaller and regional competitors. Revenue growth is constrained by these factors averaging a little more than 5% annually.
As a result, revenue gains come primarily from:
- Overall growth in the economy
- Gobbling up market share from competitors, and
- Acquisition of competitors
SYSCO DIVIDEND, EARNINGS AND PAYOUT RATIO
The earnings recovery that started in 2017 has been a catalyst for recent dividend growth. The dividend payout ratio stands at about 53% of earnings per share. In addition, the dividend is consuming slightly less than 50% of free cash flow. These metrics represent comfortable levels from my perspective. Furthermore, I expect the dividend to grow at about the same rate as earnings in the coming years, 6-8% on an annual basis.
A lower dividend payout ratio is generally better. It shows the company has ample room to raise the dividend in coming years. Or, withstand an earnings drop with out having to reduce the dividend.
CREDIT RATING
Knowing a company’s credit rating is important. Furthermore, it can make a big difference between companies that struggle and those who hold there own during a recession. Finally, a corporation’s credit rating is similar to how your personal credit score works. Most noteworthy, higher ratings mean lower risk to those who lend the company money. Also higher ratings mean lenders will likely get their loans paid back.
Certainly we are not lenders here at Dividends Diversify, we are dividend stock investors. However, it never hurts to check out a company’s credit worthiness.
Sysco has a lower rating as compared to most quality dividend paying companies. They are rated BBB+ and A3 by S&P and Moody’s, respectively. As indicated in the chart below, that is still investment grade, but with moderate credit risk.
SYSCO STOCK VALUATION
Sysco stock remains a little pricey. Improving profitability has reduced the price to earnings ratio to just north of 20 times projected fiscal 2019 earnings per share. Sysco is another one of those quality dividend growth stocks that rarely goes on sale.
SYSCO DIVIDEND WRAP UP
Sysco stock holds a mid-size position in my dividend investing portfolio. And I would be interested in adding to that position below $60 per share.
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WHAT ARE YOUR COMMENTS?
Do you own Sysco? What do you think of their prospects for the future?
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Disclosure and Disclaimer
As of this writing, I am long Sysco and the Sysco dividend. First of all, the information on this site is for educational and entertainment purposes only. In addition, the information is not to be used as investment advice specific to your circumstances. Furthermore, consult your personal investment and/or tax advisers prior to investing money. Finally, please realize you are solely responsible for any investment gains or losses as a result of the investments you enter into. You can find additional information under this site’s disclaimer tab: Disclaimer & Privacy Policy.
Like you, SYY is a mid-size holding in my portfolio but doubt I’ll be adding in 2019. Their customers are showing slower sales, rising interest rates are a potential headwind and the benefit of the tax plan was a boost for 2018. Margin compression and cutthroat competition (USFD and PFGC) are slight concerns although I’m not sure how many contracts are up for renewal in the short term.
Happy Holidays!
It is a tough and competitive business for sure SR. Happy Holidays to you too! Tom
Hi Tom, Merry Christmas! I heard about Sysco. Wow, the 49th consecutive year of the dividend payout, that’s very impressive. I’m curious if Sysco has any retail stores as GFS does.
Good question and one I had not thought of. I didn’t know GFS had retail stores either. In doing my review, I don’t think Sysco has retail or if they do it is a very small portion of their business. Tom
Hi Tom,
Like you say, Sysco looks like a pretty good buy if the price goes down. I expect that, if the current downturn continues, it will be a great time to buy a lot of stocks.
Cheers,
Miguel
I was hoping to scoop up a few stock bargains this week Miguel, but the market rallied on me big time yesterday while I was traveling and didn’t have a chance. Will have to watch and see where it goes from here. Tom
Looks solid pick for dividends. I own it as a part of VIG ETF. Happy New Year Tom!
Hey DG. Happy New Year to you too! Tom
Embarrassingly I used to get Sysco confused with Cisco 🙂 I see Sysco trucks everywhere up here in Canada 🙂 Can’t go wrong with food!!
Hi GYM. I can see how that can happen. When I hear the name in the media, I have to listen for context to understand who they are talking about! Tom
Sysco is a massive company and in an extremely competitive industry, but they have managed to keep chugging along quite consistently. I don’t own them outright, but do have some exposure via funds.
Great post. To make it even more valuable, I’d like to suggest adding stock symbol (SYY in this case) somewhere to the text.
Keep up the good work!
Hi Matt. Thanks for the suggestion. I will get that added in. Tom