Over the past 10 years Sysco Corporation (NYSE:SYY) has been paying dividends to shareholders. The company currently pays out a dividend yield of 2.5% to shareholders, making it a relatively attractive dividend stock. Let’s dig deeper into whether Sysco should have a place in your portfolio.
How I analyze a dividend stock
Whenever I am looking at a potential dividend stock investment, I always check these five metrics:
- Does it pay an annual yield higher than 75% of dividend payers?
- Has it paid dividend every year without dramatically reducing payout in the past?
- Has the amount of dividend per share grown over the past?
- Does earnings amply cover its dividend payments?
- Will it have the ability to keep paying its dividends going forward?
How well does Sysco fit our criteria?
Sysco has a trailing twelve-month payout ratio of 50%, which means that the dividend is covered by earnings. However, going forward, analysts expect SYY’s payout to fall to 43% of its earnings. Assuming a constant share price, this equates to a dividend yield of 2.6%. However, EPS should increase to $3.36, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.
When thinking about whether a dividend is sustainable, another factor to consider is the cash flow. Cash flow is important because companies with strong cash flow can usually sustain higher payout ratios.
If there’s one type of stock you want to be reliable, it’s dividend stocks and their stable income-generating ability. In the case of SYY it has increased its DPS from $0.96 to $1.56 in the past 10 years. During this period it has not missed a payment, as one would expect for a company increasing its dividend. These are all positive signs of a great, reliable dividend stock.
Relative to peers, Sysco has a yield of 2.5%, which is high for Consumer Retailing stocks but still below the market’s top dividend payers.
With these dividend metrics in mind, I definitely rank Sysco as a strong income stock, and is worth further research for anyone who considers dividends an important part of their portfolio strategy. Given that this is purely a dividend analysis, I recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. Below, I’ve compiled three key factors you should look at:
- Future Outlook: What are well-informed industry analysts predicting for SYY’s future growth? Take a look at our free research report of analyst consensus for SYY’s outlook.
- Valuation: What is SYY worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether SYY is currently mispriced by the market.
- Other Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at email@example.com.