Dividend Kings In Focus: Sysco Company

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

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

You possibly can see a full downloadable spreadsheet of all 50 Dividend Kings, together with a number of essential 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 engaging qualities as a dividend progress inventory. It’s the largest firm in its business, offering high-profit margins and sturdy aggressive benefits.

It additionally has long-term progress potential and the power to extend its dividend annually.

Enterprise Overview

Sysco was based in 1969 and went public the next 12 months. In its first 12 months as a publicly-traded firm, it had gross sales of simply $115 million. The corporate has grown steadily over the almost 5 a long time since. Within the 2023 fiscal 12 months, Sysco had gross sales of $76.3 billion.

Right this moment, Sysco is the biggest wholesale meals distributor within the U.S. It distributes merchandise together with contemporary and frozen meals and dairy and beverage merchandise. It additionally supplies 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 services, schooling, authorities workplaces, journey, leisure, and retail companies. It additionally has a big section of different buyer sorts, equivalent to bakeries, church buildings, civic and fraternal organizations, merchandising distributors, and worldwide exports.

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

Development Prospects

The working local weather for Sysco was challenged over the previous two years because the coronavirus pandemic pressured 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 Yr (FY) 2023. Within the fourth quarter, Sysco achieved a 4.1% gross sales improve in comparison with the identical interval within the earlier fiscal 12 months, with U.S. Foodservice quantity rising by 2.3%. Adjusted EPS rose by 16.5% to $1.34, in comparison with the earlier fiscal 12 months.

For your complete fiscal 12 months 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 progress, acquisition-added income progress, and share repurchases is predicted to end in 7% annual earnings-per-share progress.

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

Aggressive Benefits & Recession Efficiency

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

Nevertheless, Sysco is the biggest operator within the business and has stored rivals at bay for thus 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 services worldwide and serves roughly 700,000 buyer areas. Such an enormous presence permits Sysco to maintain prices low, and it may possibly 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 stage of demand, whatever the situation of the U.S. financial system.

This is the reason Sysco’s income held up properly throughout 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 light 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 annually, even throughout recessions.

Valuation & Anticipated Returns

Sysco is predicted 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 honest worth estimate is a price-to-earnings ratio of 20.0, which suggests the inventory is presently buying and selling under honest worth. Rising to this goal valuation would improve annual returns by 4.6% over the following 5 years.

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

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

Sysco ought to have little hassle 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.

Closing Ideas

Sysco operates on the high of its business. Although it confronted extreme headwinds throughout the pandemic, the ahead outlook is brilliant.

The inventory is undervalued, which means proper now may very well be an opportune time to buy the inventory. We imagine future returns can be sturdy for traders shopping for the inventory on the present valuation stage.

Consequently, Sysco stays a high quality holding inside a dividend progress portfolio and a purchase on the present value.

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