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SYY: Stock Analysis for Dividend Growth Portfolio

Sysco Corporation, through its subsidiaries, markets and distributes a range of food and related products primarily for food service industry. It distributes frozen foods, non-food items, restaurant equipment and cleaning supplies. It serves restaurants, hospitals and nursing homes, schools and colleges, and hotels and motels.

Trend Analysis

This section measures the trends for past 10 years of corporation’s revenue and profitability. The parameters should show consistent growth trends. The worksheet is at SYY stock analysis.

Risk Parameter Calculation

Here I use the corporation’s financial health to assign a risk number for measuring risk-to-dividends. I have discussed this in more detail at Dividend Tree. This is calculated as arithmetic average based on price, yield, EPS growth rate, payout factor, gross margin, operating margin, and financial leverage. The risk number for risk-to-dividends is 1.86. This is a medium risk category as per my 3-point risk scale. An increasing payout factor and historically high yield is making SYY dividend as a medium risk.

Quality of Dividends

This section measures the dividend growth rate, duration of growth, consistency over a period of past ten years.

Fair Value Calculation

This section determines what price I should pay to buy a given stock

The range of fair value is calculated as $20.3 to $26.7. This determined by taking average (for high value) of above five parameters and then subtracting it with half the standard deviation (for low value).

Qualitative Analysis

The strength of SYY is its well established distribution network and existing leadership position. Putting this in context of economic environment, it has opportunity to grow due to its pricing ability and leveraging existing distribution network. In addition, the commodity prices have also cooled down. At the same time, the revenues are likely to be under pressure. It’s largest customer base is restaurant industry which is expected to have a slow down.

Conclusion

The company raised its annual dividend for 2009 from $0.88 to $0.96 per share. The stocks risk-to-dividend number is 1.86 (medium risk category). In addition, the dividend cash flow is also 2.15 times the MMA income based my expected dividend growth of 9.4%. I will continue to hold my existing position. The existing price within my fair value range. I will add to my position, as long as my allocation allows.