This article originally appeared on The DIV-Net June 8, 2009.
Linked here is a detailed quantitative analysis of Sysco Corp. (SYY). Below are some highlights from the above linked analysis:
Company Description: SYSCO Corporation, through its subsidiaries, engages in the marketing and distribution of a range of food and related products primarily for food service industry in the United States and Canada.
Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description:
- Avg. High Yield Price
- 20-Year DCF Price
- Avg. P/E Price
- Graham Number
SYY is trading at a discount to 1.) and 3.) above. If I exclude the high and low valuations and average the remaining two, SYY is trading at a 13.1% discount. SYY earned a Star in this section since it is trading at a fair value.
Dividend Analytical Data: In this section I consider five factors, see page 2 of the linked PDF for a detailed description:
- Rolling 4-yr Div. > 15%
- Dividend Growth Rate
- Years of Div. Growth
- 1-Yr. > 5-Yr Growth
- Payout 15% of avg.
SYY earned one Star in this section for 3.) above. SYY has paid a cash dividend to shareholders every year since 1970 and has increased its dividend payments for 38 consecutive years.
Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA)? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:
- NPV MMA Diff.
- Years to > MMA
SYY earned both of the available Stars in this section. The NPV MMA Diff. of the $22,357 is in excess of the $2,500 minimum I look for in a stock that has increased dividends as long as SYY has. If SYY grows its dividend at 12.2% per year, it will take 1 years to equal the cumulative earnings from a MMA yielding an estimated 20-year average rate of 4.06%. SYY earned a Star since its Years to >MMA of 1 is less than 5 years.
Other: SYY is a member of the S&P 500 and a member of the Broad Dividend Achievers™ Index. SYY operates in a relatively stable industry and is considered to have the largest market share. Some analysts believe the company is gaining share during these difficult times. Restaurants accounted for approximately 63% of fiscal 2008 sales. SYY should continue to see growth from acquisitions and internally generated. Risks include slowing of growth rates, sharp increases in fuel prices, and a prolonged slowdown in restaurant sales due to economic conditions.
Conclusion: SYY earned one Star in the Fair Value section, earned one Star in the Dividend Analytical Data section and earned two Stars in the Dividend Income vs. MMA section for a net total of four Stars. This quantitatively ranks SYY as a 4 Star-Buy.
Using my D4L-PreScreen.xls model, I determined the share price could increase to $43.11 before SYY’s NPV MMA Differential fell to the $3,000 that I like to see for a stock with 38 consecutive years of dividend increases. At that price the stock would yield 2.13%.
Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the needed $3,000 NPV MMA Differential, the calculated rate is 4.3%. This dividend growth rate is well below the 12.2% used in this analysis, thus providing a significant margin of safety. SYY has a risk rating of 1.25 which classifies it as a low risk stock.
I have held SYY since January 2008. During that time it has decreased 17.5% on a dividend adjusted basis compared a 31.0% decrease for the S&P 500. Long-term, I like SYY’s prospects. However, near-term SYY will continue to face pressure in its restaurants’ end-market due to weak consumer discretionary spending. I will look for opportunities to judiciously increase my position in SYY when the stock is trading below my buy price of $27.56. For additional information, including the stock’s dividend history, please refer to its data page.
Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.
Full Disclosure: At the time of this writing, I was long in SYY (2.9% of my Income Portfolio).
What are your thoughts on SYY?