It Might Not Be A Great Idea To Buy Sysco Corporation (NYSE:SYY) For Its Next Dividend

By
Simply Wall St
Published
June 27, 2021
NYSE:SYY
Source: Shutterstock

It looks like Sysco Corporation (NYSE:SYY) is about to go ex-dividend in the next two days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Therefore, if you purchase Sysco's shares on or after the 1st of July, you won't be eligible to receive the dividend, when it is paid on the 23rd of July.

The company's upcoming dividend is US$0.47 a share, following on from the last 12 months, when the company distributed a total of US$1.80 per share to shareholders. Calculating the last year's worth of payments shows that Sysco has a trailing yield of 2.4% on the current share price of $77.04. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

View our latest analysis for Sysco

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Sysco paid a dividend last year despite being unprofitable. This might be a one-off event, but it's not a sustainable state of affairs in the long run. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If Sysco didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. Dividends consumed 56% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

historic-dividend
NYSE:SYY Historic Dividend June 28th 2021

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If earnings fall far enough, the company could be forced to cut its dividend. Sysco reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, 10 years ago, Sysco has lifted its dividend by approximately 6.5% a year on average.

Remember, you can always get a snapshot of Sysco's financial health, by checking our visualisation of its financial health, here.

Final Takeaway

Is Sysco worth buying for its dividend? First, it's not great to see the company paying a dividend despite being loss-making over the last year. On the plus side, the dividend was covered by free cash flow." Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.

With that being said, if you're still considering Sysco as an investment, you'll find it beneficial to know what risks this stock is facing. For instance, we've identified 2 warning signs for Sysco (1 makes us a bit uncomfortable) you should be aware of.

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.

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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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