SYSCO Corporation Stock Analysis

SYSCO Corporation, 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.

Full Disclosure: Long SYY

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