Updated on October 3rd, 2022 by Quinn Mohammed
The Dividend Kings are a group of 45 companies with 50+ consecutive years of dividend increases. Broadly speaking, they are among the highest-quality dividend growth investments in the entire stock market.
You can see a full downloadable spreadsheet of all 45 Dividend Kings, along with several important financial metrics such as price-to-earnings ratios and dividend yields, by clicking on the link below:
Food distributor Sysco Corporation (SYY) has a long history of steady dividends and regular dividend increases. It has paid a dividend every quarter since it went public in 1970. Its most recent increase was a 4.3% raise in April 2022.
Sysco stock had a fantastic fiscal 2022, delivering strong financial results, growing volumes and sales, and improved profitability.
Sysco has many attractive qualities as a dividend growth stock. It is the largest company in its industry, providing high-profit margins and durable competitive advantages.
It also has long-term growth potential and the ability to increase its dividend each year.
Sysco was founded in 1969 and went public the following year. In its first year as a publicly-traded company, it had sales of just $115 million.
The company has grown steadily over the nearly five decades since. In the 2022 fiscal year, Sysco had sales of $68.6 billion.
Today, Sysco is the largest wholesale food distributor in the U.S. It distributes products including fresh and frozen foods and dairy and beverage products.
It also provides non-food products, including tableware, cookware, restaurant and kitchen supplies, and cleaning supplies.
The company has a wide range of customers, including restaurants, healthcare facilities, education, government offices, travel, leisure, and retail businesses.
It also has a large segment of other customer types, such as bakeries, churches, civic and fraternal organizations, vending distributors, and international exports.
Source: Investor Presentation
In all, Sysco has approximately 700,000 customer locations. Its position atop the food distribution industry provides Sysco with high-profit margins and future growth potential.
Many of these customers have faced extreme hardship due to the pandemic. Social distancing restrictions in response to COVID-19 severely limited away-from-home dining options for consumers in 2020.
Fortunately, the U.S. economy (and the restaurant industry specifically) have rebounded over the course of 2021 and 2022, which is an excellent sign for Sysco.
The operating climate for Sysco was challenged over the past two years as the coronavirus pandemic forced closures of restaurants and other dining venues that make up Sysco’s customer base. Also, supply chain issues across the country affected Sysco.
Sysco remained profitable in 2021 and saw a significant recovery in 2022, which we expect to continue into fiscal 2023.
On August 9th, 2022, Sysco reported the fourth quarter and FY 2022 results. Sales increased by 17.5% year-over-year and 22.5% compared to Q4 2019. Adjusted earnings-per-share rose to $1.15 from $0.71 in the same period last year quarter.
Source: Investor Presentation
For the full fiscal year 2022, Sysco saw sales increase 36.9% compared to 2021 and 14.2% compared to 2019. Adjusted earnings-per-share increased from $1.44 in 2021 to $3.25 in 2022.
Sysco has also increasingly utilized acquisitions to drive growth in recent years. In 2016, Sysco acquired U.K.-based Brakes Group for $3.1 billion.
Brakes are one of the largest food service companies in Europe. It serves fresh, refrigerated, and frozen foods to over 50,000 customers and has a leading presence in the U.K., France, Sweden, Ireland, Belgium, Spain, and Luxembourg.
Sysco also completed three Specialty acquisitions in fiscal 2022.
In our view, the combination of organic sales growth, acquisition-added revenue growth, and share repurchases is expected to result in 7% annual earnings-per-share growth.
We believe this is an attainable goal due to the company’s robust business model and impressive competitive advantages.
Competitive Advantages & Recession Performance
The U.S. food service industry is fiercely competitive. There are thousands of competitors to Sysco, including other food distributors, wholesale or retail outlets, grocery stores, and online retailers.
Sysco also faces the risk of its customers negotiating directly with its suppliers.
However, Sysco is the largest operator in the industry and has kept competitors at bay for so many years.
Sysco estimates that it controls about 17% of the approximately $300+ billion annual foodservice market in the U.S.
Sysco operates 333 distribution facilities worldwide and serves roughly 700,000 customer locations. Such a huge presence allows Sysco to keep costs low, and it can pass on the benefits to its customers with competitive pricing.
Another benefit of Sysco’s business model is that it is resistant to recessions. Everyone has to eat, which gives Sysco a certain level of demand, regardless of the condition of the U.S. economy.
This is why Sysco’s profits held up well during the Great Recession:
- 2007 earnings-per-share of $1.60
- 2008 earnings-per-share of $1.81 (13% increase)
- 2009 earnings-per-share of $1.77 (2% decline)
- 2010 earnings-per-share of $1.99 (12% increase)
Sysco grew earnings-per-share at a double-digit pace in 2008 and 2010, with only a mild dip in 2009. The company grew earnings from 2007 to 2010, which was a rare achievement.
Sysco’s stable industry and top competitive position have allowed it to raise its dividend each year, even during recessions.
Valuation & Expected Returns
Sysco is expected to produce adjusted earnings-per-share of $4.20 in fiscal 2023. The stock has a forward price-to-earnings ratio of 16.8.
Our fair value estimate is a price-to-earnings ratio of 20.0, which means the stock is currently trading below fair value. Growing to this target valuation would increase annual returns by 3.5% over the next five years.
We expect Sysco to deliver 7% annual earnings growth going forward, consisting of organic growth, acquisitions, and share repurchases.
In addition, Sysco has a current dividend yield of 2.7%, which is a higher yield than the average yield of the broader S&P 500 Index.
This leads to total expected annualized returns of 12.8% annually over the next five years.
Sysco should have little trouble increasing its dividend going forward. The company has an expected dividend payout ratio of 45% for fiscal 2023.
This indicates that the dividend is sufficiently covered and should continue to increase over time.
Sysco operates at the top of its industry. Though it faced severe headwinds during the pandemic, the forward outlook is bright.
The stock is undervalued, meaning right now could be an opportune time to purchase the stock. We believe future returns will be strong for investors buying the stock at the current valuation level.
As a result, Sysco remains a quality holding within a dividend growth portfolio and a buy at the current price.
The following articles contain stocks with very long dividend or corporate histories, ripe for selection for dividend growth investors:
- The High Yield Dividend Aristocrats List is comprised of the 20 Dividend Aristocrats with the highest current yields.
- The Dividend Achievers List is comprised of ~350 stocks with 10+ years of consecutive dividend increases.
- The High Yield Dividend Kings List is comprised of the 20 Dividend Kings with the highest current yields.
- The Blue Chip Stocks List: stocks that qualify as Dividend Achievers, Dividend Aristocrats, and/or Dividend Kings
- The High Dividend Stocks List: stocks that appeal to investors interested in the highest yields of 5% or more.
- The Monthly Dividend Stocks List: stocks that pay dividends every month, for 12 dividend payments per year.
- The Dividend Champions List: stocks that have increased their dividends for 25+ consecutive years.
Note: Not all Dividend Champions are Dividend Aristocrats because Dividend Aristocrats have additional requirements like being in The S&P 500.
- The Dividend Contenders List: 10-24 consecutive years of dividend increases.
- The Dividend Challengers List: 5-9 consecutive years of dividend increases.
- The Best DRIP Stocks: The top 15 Dividend Aristocrats with no-fee dividend reinvestment plans.
- The 2022 High ROIC Stocks List: The top 10 stocks with high returns on invested capital.
- The 2022 High Beta Stocks List: The 100 stocks in the S&P 500 Index with the highest beta.
- The 2022 Low Beta Stocks List: The 100 stocks in the S&P 500 Index with the lowest beta
- The Complete List of Russell 2000 Stocks
- The Complete List of NASDAQ-100 Stocks