Over the past 10 years Sysco Corporation (NYSE:SYY) has been paying dividends to shareholders. The company currently pays out a dividend yield of 2.5% to shareholders, making it a relatively attractive dividend stock. Should it have a place in your portfolio? Let’s take a look at Sysco in more detail.
5 checks you should use to assess a dividend stock
When researching a dividend stock, I always follow the following screening criteria:
- Is it the top 25% annual dividend yield payer?
- Does it consistently pay out dividends without missing a payment of significantly cutting payout?
- Has dividend per share risen in the past couple of years?
- Is its earnings sufficient to payout dividend at the current rate?
- Based on future earnings growth, will it be able to continue to payout dividend at the current rate?
Does Sysco pass our checks?
Sysco has a trailing twelve-month payout ratio of 50%, meaning the dividend is sufficiently covered by earnings. In the near future, analysts are predicting lower payout ratio of 44% which, assuming the share price stays the same, leads to a dividend yield of around 2.6%. However, EPS should increase to $3.36, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.
When considering the sustainability of dividends, it is also worth checking the cash flow of a company. Cash flow is important because companies with strong cash flow can usually sustain higher payout ratios.
If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you’re eyeing out is reliable in its payments. SYY has increased its DPS from $0.96 to $1.56 in the past 10 years. During this period it has not missed a payment, as one would expect for a company increasing its dividend. These are all positive signs of a great, reliable dividend stock.
Compared to its peers, Sysco has a yield of 2.5%, which is high for Consumer Retailing stocks but still below the market’s top dividend payers.
With this in mind, I definitely rank Sysco as a strong dividend stock, and makes it worth further research for anyone who likes steady income generation from their portfolio. Given that this is purely a dividend analysis, you should always research extensively before deciding whether or not a stock is an appropriate investment for you. I always recommend analysing the company’s fundamentals and underlying business before making an investment decision. I’ve put together three key aspects you should further examine:
- Future Outlook: What are well-informed industry analysts predicting for SYY’s future growth? Take a look at our free research report of analyst consensus for SYY’s outlook.
- Valuation: What is SYY worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether SYY is currently mispriced by the market.
- Other Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.