Sysco (SYY) increases dividend by 6%, but posts anemic sales growth and maintains a 20 P/E.

Sysco’s (NYSE:SYY) dividend was increased by 6%. Its overall yield is above that of the S&P 500 Index, at 2.48%. The firm has paid a dividend since February of 1993.

Sysco is the global firm providing food products to restaurants, educational facilities, hotels. The firm is the top distributor in North America and also Ireland.  It has a market share over 15%.  Sysco now gets 10% of is revenue from Europe as a result of the acquisition of Brakes.  The completion of the acquisition was accomplished in July for $3.1 billion. Brakes is a top food distributor in the United Kingdom as well as France and Sweden. In calendar year 2015, Brakes produced annual revenue of nearly $5 billion.

Sysco’s family of products also includes equipment and supplies. The company operates nearly 200 distribution facilities in North America serving over 425,000 customers each year. For fiscal year 2016 that ended July 2, 2016, the company generated sales of more than $50 billion. Sysco currently ranks 1st in yield within the large cap services, food wholesaler, category.

Sysco has maintained a three-year growth rate of dividends of 3.5 percent. The quarterly dividend for the January payment will be $0.33 versus the prior year rate of $0.31 per share. Sysco Corp. is not a member of our Top 100 Dividend Stock List (see below).

The dividend will be paid at the new higher rate on January 27, 2017, to shareholders of record at close of business on January 6, 2017. Sysco is currently priced at $53.13. Listed in the table below are the quarterly dividend payments since 2010.

Date Quarterly Dividend
1/6/2017 0.33
10/5/2016 0.31
6/29/2016 0.31
3/30/2016 0.31
1/6/2016 0.31
9/30/2015 0.3
6/30/2015 0.3
3/31/2015 0.3
12/30/2014 0.3
10/1/2014 0.29
7/1/2014 0.29
4/2/2014 0.29
12/31/2013 0.29
10/2/2013 0.28
7/2/2013 0.28
4/3/2013 0.28
1/2/2013 0.28
10/3/2012 0.27
7/3/2012 0.27
4/3/2012 0.27
1/4/2012 0.27
10/5/2011 0.26
6/29/2011 0.26
3/30/2011 0.26
1/5/2011 0.26
9/29/2010 0.25
6/30/2010 0.25
3/30/2010 0.25

Analysis of Sysco is based upon our five key criteria, which include; 

Category Value Score
Dividend Yield 2.48% 217
Dividend Growth (3 to 6 year avg) 3.6%  322
Forward P/E 19.86  196
S&P Financial Rating BBB+  160
Beta 0.75 75
Total Score    970

Additional Information on P/S ratio and historical yield;

% Yield 3 Year Div. Growth Rate 6 Year Div. Growth Rate SPS 2016 P/S Ratio 10 yr P/S Low 10 yr P/S High 5 yr lowest Yield % 5 yr max Yield %
2.48% 3.5% 3.7% 90.01 0.59 0.31 0.90 2.30% 3.87%

Positives;

  • Sysco maintains a credit rating of BBB+. This is investment grade.
  • Sysco is trading at its ten-year average price/sales (P/S) average.
  • Sysco’s  dividend yield is above that of the S&P 500 Index.
  • Sysco has paid out a dividend consecutively for the last 23 years.
  • Sysco maintains a beta of 0.75, much lower than the average company.

Negatives;

  • Sysco forward P/E ratio is just over 19, above that of the market.
  • Sysco current dividend yield (2.48%) is below its five-year average historical dividend yield of 3.09% and close to its five-year low.

Latest Earnings & Overall Analysis:

Sysco also announced earnings for Q1 2017 on November 7th. The firm’s earnings exceeded expectations while revenues were in line with the same. The acquisition of Brakes assisted in the firm topping earnings estimates.  Earnings per share were 67 cents, which beat the average analyst estimate of 59 cents.  Earnings per share were up by nearly 30% year-over-year. Excluding the acquisition of Brakes, earnings were up by just over 20% year-over-year.  Revenue of $14.0 billion was in line with estimates and grew an impressive 11% from last year’s results. But most of the gains were from the Brakes side of the equation.

Without taking into effect the merger, sales rose a modest 1%.  Gross margins were a solid 19.3%, an improvement over last year’s 18.5% level.The company dominates its market with twice the revenue of the nearest competitor. But the industry, although fragmented, is very competitive on pricing. Sysco’s revenue growth potential, even with the acquisition, is in the 1-3% range. Its dividend increases have also been very modest at 3% plus on an annual basis. Its recent hike of 6% is more impressive, but we expect that the firm will most likely keep dividend increases in check over the ensuing five years.

This is more in line with the utility sector. But its yield at 2.48% is well below most utility stocks. And, the yield is far below the 3.75% yield that Sysco maintained in mid-2012 due to the price of the stock advancing much faster than the increases in dividend. It also trades at an above market price/earnings ratio. Based on its high forward P/E and a dividend yield well below its historical average (3.09%), Sysco does not qualify as a member of our  Top 100 Dividend Stocks

Sysco Corp. Dividend Yield Chart (Click to enlarge)

syy2

Chart Explanation:  Dividend growth stocks may be viewed favorably when the current yield is above historical readings for the past 5 years.

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