Dividend Kings In Focus: Sysco Corporation

Up to date on September twenty second, 2023 by Bob Ciura

The Dividend Kings are a gaggle of fifty corporations with 50+ consecutive years of dividend will increase. Broadly talking, they’re among the many highest-quality dividend development investments in your entire inventory market.

You possibly can see a full downloadable spreadsheet of all 50 Dividend Kings, together with a number of necessary monetary metrics equivalent to price-to-earnings ratios and dividend yields, by clicking on the hyperlink under:

Meals distributor Sysco Company (SYY) has an extended historical past of regular dividends and common dividend will increase. It has paid a dividend each quarter because it went public in 1970.

Sysco has many enticing qualities as a dividend development inventory. It’s the largest firm in its business, offering high-profit margins and sturdy aggressive benefits.

It additionally has long-term development potential and the power to extend its dividend every year.

Enterprise Overview

Sysco was based in 1969 and went public the next yr. In its first yr as a publicly-traded firm, it had gross sales of simply $115 million. The corporate has grown steadily over the practically 5 many years since. Within the 2023 fiscal yr, Sysco had gross sales of $76.3 billion.

Right now, Sysco is the most important wholesale meals distributor within the U.S. It distributes merchandise together with recent and frozen meals and dairy and beverage merchandise. It additionally gives different merchandise, together with tableware, cookware, restaurant and kitchen provides, and cleansing provides.

Supply: Investor Presentation

The corporate has a variety of shoppers, together with eating places, healthcare amenities, training, authorities workplaces, journey, leisure, and retail companies. It additionally has a big phase of different buyer varieties, equivalent to bakeries, church buildings, civic and fraternal organizations, merchandising distributors, and worldwide exports.

In all, Sysco has roughly 700,000 buyer places. Its place atop the meals distribution business gives Sysco with high-profit margins and future development potential.

Development Prospects

The working local weather for Sysco was challenged over the previous two years because the coronavirus pandemic compelled closures of eating places and different eating venues that make up Sysco’s buyer base. Additionally, provide chain points throughout the nation affected Sysco.

On August 1st, 2023, Sysco reported fourth-quarter outcomes for Fiscal 12 months (FY) 2023. Within the fourth quarter, Sysco achieved a 4.1% gross sales improve in comparison with the identical interval within the earlier fiscal yr, with U.S. Foodservice quantity rising by 2.3%. Adjusted EPS rose by 16.5% to $1.34, in comparison with the earlier fiscal yr.

For your entire fiscal yr 2023, Sysco grew income by 11% with a 5.2% rise in U.S. Foodservice quantity. Adjusted earnings-per-share elevated 23% to $4.01.

In our view, the mix of natural gross sales development, acquisition-added income development, and share repurchases is anticipated to end in 7% annual earnings-per-share development.

We consider that is an attainable purpose as a result of firm’s strong enterprise mannequin and spectacular aggressive benefits. The corporate can be within the technique of slicing overhead prices, which ought to mildly increase bottom-linegrowth.

Aggressive Benefits & Recession Efficiency

The U.S. meals service business is fiercely aggressive. There are millions of opponents to Sysco, together with different meals distributors, wholesale or shops, grocery shops, and on-line retailers. Sysco additionally faces the danger of its clients negotiating instantly with its suppliers.

Nonetheless, Sysco is the most important operator within the business and has stored opponents at bay for therefore a few years. Sysco estimates that it controls about 17% of the roughly $300+ billion annual meals service market within the U.S., giving it plenty of room to proceed increasing.

Supply: Investor Presentation

Sysco operates ~333 distribution amenities worldwide and serves roughly 700,000 buyer places. Such an enormous presence permits Sysco to maintain prices low, and it could actually go on the advantages to its clients with aggressive pricing.

One other good thing about Sysco’s enterprise mannequin is that it’s proof against recessions. Everybody has to eat, which supplies Sysco a sure degree of demand, whatever the situation of the U.S. financial system.

Because of this Sysco’s income held up nicely in the course of the Nice Recession:

2007 earnings-per-share of $1.60
2008 earnings-per-share of $1.81 (13% improve)
2009 earnings-per-share of $1.77 (2% decline)
2010 earnings-per-share of $1.99 (12% improve)

Sysco grew earnings-per-share at a double-digit tempo in 2008 and 2010, with solely a gentle dip in 2009. The corporate grew earnings from 2007 to 2010, which was a uncommon achievement.

Sysco’s steady business and high aggressive place have allowed it to boost its dividend every year, even throughout recessions.

Valuation & Anticipated Returns

Sysco is anticipated to supply adjusted earnings-per-share of $4.30 in fiscal 2024. The inventory has a ahead price-to-earnings ratio of 16.0.

Our truthful worth estimate is a price-to-earnings ratio of 20.0, which implies the inventory is presently buying and selling under truthful worth. Rising to this goal valuation would improve annual returns by 4.6% over the subsequent 5 years.

We additionally anticipate Sysco to ship 7% annual earnings development going ahead, consisting of natural development, acquisitions, and share repurchases.

As well as, Sysco has a present dividend yield of two.9%, which is the next yield than the typical yield of the broader S&P 500 Index. This results in complete anticipated annualized returns of 14.5% yearly over the subsequent 5 years.

Sysco ought to have little bother rising its dividend going ahead. The corporate has an anticipated dividend payout ratio of 48% for fiscal 2024. This means that the dividend is sufficiently lined and may proceed to extend over time.

Remaining Ideas

Sysco operates on the high of its business. Although it confronted extreme headwinds in the course of the pandemic, the ahead outlook is shiny.

The inventory is undervalued, which means proper now might be an opportune time to buy the inventory. We consider future returns will likely be sturdy for buyers shopping for the inventory on the present valuation degree.

In consequence, Sysco stays a top quality holding inside a dividend development portfolio and a purchase on the present worth.

The next articles comprise shares with very lengthy dividend or company histories, ripe for choice for dividend development buyers: