Tags: slow | steady | dividend | aristocrat

Slow, Steady Wins Race for Dividend Aristocrat Sysco

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Wednesday, 13 February 2019 06:00 PM Current | Bio | Archive

Investing in high-quality dividend growth stocks, such as the Dividend Aristocrats, might not be the most exciting idea. But for risk-averse investors, buying “boring” stocks can be a good thing.

An example of this is giant food distributor Sysco (SYY). There is nothing overly exciting about Sysco’s business model, but it has been extremely rewarding for shareholders over time.

Sysco has increased its dividend each year for over 30 years in a row, and the stock has generated strong returns for investors. In the past 20 years, Sysco delivered total returns of 11.1% per year, compared with just 5.8% annual returns for the S&P 500 Index in the same time.

Sysco has proven that sometimes slow-and-steady wins the race for long-term investors.

Business Overview And Growth

Sysco is a large food distributor, with 2018 sales of $58.7 billion. It has a huge network of 600,000 customers, in the U.S. and around the world. It serves a variety of industries, including restaurants which comprise nearly two-thirds of sales, followed by healthcare facilities.

Sysco is performing well, thanks to a strong economic backdrop. The global economy continues to grow, and this has resulted in higher demand. Sysco’s sales increased 6% in 2018, and by 3.2% over the first half of fiscal 2019.

The U.S. segment is leading the way for Sysco. The company’s core U.S. Foodservice operating segment posted 4.2% sales growth in the most recent quarter, driven by 2% organic growth as well as additional growth from acquisitions.

Sysco’s leading industry position allows it to expand profit margins, even in an inflationary environment. Gross margin expanded by six basis points to 19.8% last quarter, despite a 1.4% increase in food cost inflation.

The combination of higher sales, margin expansion, and share repurchases fueled 9% earnings growth over the first half of the current fiscal year. This is a steady rate of growth that is highly typical of Sysco, year in and year out.

Feeding Investors With Dividend Growth

From fiscal 2014 through 2018, Sysco grew its adjusted EPS by 15.5% per year, on average. This has allowed the company to continue rewarding investors with share buybacks, which have helped boost EPS growth, and dividend growth as well.

Sysco has fully capitalized on the steady economic growth over the past 10 years. But one of the more attractive aspects of Sysco’s business model is that it is also resistant to recessions. During the Great Recession, Sysco’s EPS increased 13% in 2008, and declined just 2% in 2009. EPS increased another 12% in 2010.

Sysco benefits from a highly stable operating environment. Food is a basic necessity, which means the company sees a certain level of demand each year, even during an economic downturn.

Sysco has the ability to remain highly profitable and continue to grow earnings through all economic cycles. This means investors can be fairly certain that the company will increase its dividend each year.

Sysco stock has a dividend yield of 2.4%, and is likely to announce a dividend increase for the next quarterly declaration. A resilient business model and annual dividend increases make Sysco a worthwhile holding for long-term dividend growth investors.

Ben Reynolds is CEO of Sure Dividend. Sure Dividend helps individual investors build high quality dividend growth stock portfolios for the long run.

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BenReynolds
A resilient business model and annual dividend increases make Sysco a worthwhile holding for long-term dividend growth investors.
slow, steady, dividend, aristocrat
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2019-00-13
Wednesday, 13 February 2019 06:00 PM
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