Wednesday, December 31, 2008

took a helping of Sysco

On December 30th I initiated a stock position within my non-registered portfolio in Sysco Corp. (SYY) at $22.51.

Who's Sysco?
Sysco Corporation is a North American distributor of food and related products primarily to the food service or food-prepared-away-from-home industry. It provides products and related services to over 400,000 customers, including restaurants, health care and educational facilities, lodging establishments and other food service customers. Sysco is the far and away global leader in this area with sales of $38 Billion. If you live on this continent you've likely seen Sysco's trucks driving around as they have the largest private truck fleet in North America (9,000 trucks).

Why Invest In Sysco?

Industry Factors

Sysco is the 800 lb gorilla of the food distribution industry. Due to their long successful operating and relationship history, extensive infrastructure networks, and broad reach, Sysco possesses barriers to entry and an economic moat that is similar to that of Canadian Pacific Railway (CP) or UPS (UPS). As North Americans age and enter retirement, dining out at a nice restaurant with their families is a habit that is unlikely to be sacrificed for any meaningful period of time. Although the restaurant sector is being hurt by these tough economic times, people will again visit restaurants in droves going forward where Sysco derives about 60% of their revenues. Owning Sysco, the supplier, there is no need to speculate on which restaurant chain will succeed.

Consistency - Earnings & Dividend Growth

As reader's know, I am a sucker for a really consistent (boring) company, and Sysco certainly fits the bill. Sysco has posted extremely consistent sales and earnings growth since 1970. For example over the past 10 years Sysco has had their earnings per share decline year over year one time. They've also increased their dividend for 38 consecutive years including a very recent 9% raise in November, 2008. The company also generates very strong return on equity well over 25% most years. Sysco's financial position is solid sporting a debt/equity ratio of about 0.5.

Why Now?

Similar to many other stocks in today's market Sysco is currently trading in uncharted territory valuation-wise. It is dirt cheap compared with where it has traded in the past relative to it's current earnings, sales, and dividend rate. Sysco currently changes hands at a P/E of about 12x. That multiple is nothing short of unprecedented when you consider Sysco's history of trading at an average P/E between 17 and 28x earnings. Same story when you consider their low price to sales and price to book ratio. Sysco yields about 4.3% as of writing this which is also very high and even unheard of relative to its history. They just raised the dividend 9% (after Lehman Brothers failed), and their pay out ratio of earnings is only 45%.

..The next few years could be painful for Sysco if people choose to eat at home in a big way. In some cases though eating away from home is unavoidable, and if one lives in a retirement home, is in hospital or visiting countless other establishments they'll have no choice but to use Sysco's services despite the economy. Regardless people will be back at their favourite restaurants in the future celebrating a graduation, retirement, or simply too lazy to cook.

Dividend Growth Investor profiles Sysco here.

Dividends4Life's take here


Dividend Growth Investor said...


Good post. I like SYY for its growth and yield potential. I am also planning on buying more of it.

Sensei said...

Great research and insight. Lots of investment choices and opportunities out there.

Dividends4Life said...

MG: I bought more SYY in December.

Best Wishes,