Last update on 2024-06-27

Sysco (SYY) - Dividend Analysis (Final Score: 6/8)

Sysco (SYY) dividend analysis evaluates the performance and sustainability of its dividend policy using an 8-criteria score, achieving a final score of 6/8.

Short Analysis - Dividend Score: 6

We're running Sysco (SYY) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

Sysco (SYY) has a solid dividend performance with a score of 6 out of 8 based on the criteria analyzed. Key strengths include a dividend yield higher than the industry average, steady growth in dividend payments, and stability over the last 20 years with increases appearing robust. Sysco has managed to pay dividends reliably for over 25 years and shown dependable stock buyback practices. However, there are notable concerns about the payout ratio, which has exceeded the ideal threshold especially during the pandemic, and the recent trend of covering dividends with cash flow has raised some sustainability questions.

Insights for Value Investors Seeking Stable Income

Considering the overall strengths, particularly the consistent dividend payments and higher-than-average yield, Sysco appears to be a good option for investors who prioritize steady income. However, potential investors should be cautious of the high payout ratio and monitor the company’s cash flow situation closely. It may be worthwhile to investigate further into Sysco's financial health and future projections before making a significant investment.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Dividend Yield Higher than the Industry Average?

Explain the criterion for Sysco (SYY) and why it is important to consider

Dividend Yield represents the ratio of a company's annual dividend compared to its share price and is typically expressed as a percentage. For Sysco (SYY), a yield of 2.7075% signifies profitability returned to the shareholders. Given that Sysco's yield is higher compared to the industry average of 2.25%, this yields attractiveness, especially for dividend-focused investors. In the last 20 years, Sysco's dividend yield has fluctuated but generally outperformed the industry average, particularly notable was the year 2008 with a yield of 4.8823%. The continued competitive yield suggests strong company fundamentals, and with closing stock prices ranging from $22.94 (2008) to $85.54 (2019), the higher-than-average yield coupled with consistent dividend per share growth from $0.46 (2003) to $1.98 (2023) is admirable. Although the yield has slightly dropped off from peaks like in 2008 or 2013, it has presented a yield that can weather economic instabilities. Comparison shows stability as the industry yield average showed weaker or less volatile performance with Sysco's offering a higher return on investment.

Average annual Growth Rate higher than 5% in the last 20 years?

The Dividend Growth Rate measures the annualized percentage rate of growth of a company's dividend payments over a given time period, typically annually. It is important to consider this rate as a higher growth rate can indicate a company's strong financial health, profitability, and its commitment to returning value to shareholders.

Sysco's dividend growth rate for the past 20 years is calculated using the provided annual rates. The average dividend growth rate over this period for Sysco is approximately 9.4%, which is well above the 5% criterion. Given that the average rate is significantly higher than the threshold, this suggests that Sysco maintains a strong and consistent approach to increasing its dividends. This trend is certainly positive and indicates robust financial health, and shareholder value appreciation over the long term.

Average annual Payout Ratio lower than 65% in the last 20 years?

Average Payout Ratio lower than 65% in the last 20 years

The average payout ratio of Sysco (SYY) over the last 20 years stands at approximately 80.8%, which exceeds the ideal threshold of 65%. Payout ratios above 65% can be concerning as they may indicate that the company is returning too much capital to shareholders at the expense of future growth and financial flexibility. In Sysco's case, the datapoints show that in several years the payout ratio significantly exceeded the ideal threshold, such as 2020 and 2021, where the payout ratio reached 426.14% and 179.25% respectively, exacerbated likely by the COVID-19 pandemic impact on earnings but continuing high dividend payouts.

Dividends Well Covered by Earnings?

Dividends are well covered by the earnings.

Sysco’s Earnings Per Share (EPS) has shown considerable fluctuation over the examined years. Starting from $1.18 in 2003 and growing to $3.4889 by 2023 but faced a notable decline in 2020. The Dividend per Share (DPS) on the other hand, has demonstrated consistent growth from $0.46 in 2003 to $1.98 in 2023. It's crucial to analyze the proportion of dividends covered by earnings: favorable ratios below 1 are ideal as they indicate the company’s ability to cover dividend payouts with its earnings. In 2020, the DPS was 4.261, suggesting an extraordinary situation likely connected to the COVID-19 pandemic disrupting operations. Generally, the consistent ratios in other years, such as around 0.56 in 2023, show a manageable dividend policy.

Dividends Well Covered by Cash Flow?

This criterion examines whether the company's dividend is well-covered by its free cash flow, indicating its ability to sustain or grow its dividend payments. A higher ratio indicates better coverage.

Examining Sysco's data from 2003 to 2023, the coverage ratio of dividends by free cash flow ranges widely. Notable is the exceedingly high coverage in 2010 (1.99) and 2011 (1.31), indicating times when free cash flow significantly surpassed dividend payouts. Conversely, there is a visible decline in the coverage in recent years, with the ratio dropping to 0.48 in 2023. Consistently lower values, especially below 1, suggest that dividends are consuming a substantial portion of the free cash flow, thus limiting the company's flexibility in reinvesting back into the business or maintaining dividend growth during tougher times. This trend points to a potential vulnerability in sustainability if the free cash flow doesn't grow in tandem with dividend payouts. While historically, Sysco managed fluctuations, the downward trend from 2020 onwards raises concerns and suggests monitoring the situation closely.

Stable Dividends Since the Company Began Paying Dividends?

Stability in dividend payments, where the dividend per share did not drop by more than 20% over the past two decades, is of utmost importance for income-seeking investors.

Analyzing Sysco's (SYY) dividend payments over the last 20 years, we observe no instance where dividend per share dropped by more than 20%. The dividend per share has demonstrated appreciative resilience. The trend, with fluctuations in certain years, still shows robust dividend payments with a general upward direction. For instance, in recent years from 2019 to 2023, the dividend per share has increased from 1.56 to 1.98. The upward trend in such dividend payouts suggests strong affirmations of stable income to investors, making Sysco an attractive option for those seeking consistent returns. The fluctuations within certain years didn't critically affect long-term stability and yield, encouraging a better risk-to-reward perception for long-term income investors.

Dividends Paid for Over 25 Years?

Track record of dividend consistency over decades shows financial stability and commitment to return value to shareholders.

Sysco (SYY) has paid dividends consistently over the past 25 years, which is an excellent indicator of financial robustness and shareholder value focus. Despite variations, the dividend per share has shown an overall upward trajectory, starting from $0.185 in 1998 to $1.98 in 2023. Some dips, such as in 2009 and 2015, likely due to economic downturns or strategic reinvestment, are evident; however, the general trend is positive. This sustained dividend payment record is a strong positive indicator, reinforcing investor's confidence in Sysco.

Reliable Stock Repurchases Over the Past 20 Years?

Analyze reliable stock repurchases over a 20-year period

The data on the number of shares outstanding for Sysco (SYY) shows a consistent decline from 659,566,102 shares in 2003 to 507,362,913 shares in 2023. This downward trend in the number of shares indicates reliable stock repurchases by the company over the years. Stock repurchases are important as they demonstrate the company's commitment to returning value to its shareholders, potentially increasing the stock price due to reduced supply. Importantly, repurchases spread across many years enhance investors' confidence as it shows sustained financial health. The negative average repurchase rate of -1.2896% underscores the effectiveness of the stock buyback policy; the trend is considered positive given the consistent shortening of shares except in the years identified where the change might not be as pronounced.