Sysco Corporation (NYSE:SYY) is about to trade ex-dividend in the next 4 days. If you purchase the stock on or after the 3rd of October, you won't be eligible to receive this dividend, when it is paid on the 25th of October.
Sysco's upcoming dividend is US$0.4 a share, following on from the last 12 months, when the company distributed a total of US$1.6 per share to shareholders. Last year's total dividend payments show that Sysco has a trailing yield of 2.0% on the current share price of $78.87. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Sysco has been able to grow its dividends, or if the dividend might be cut.
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. That's why it's good to see Sysco paying out a modest 47% of its earnings. A useful secondary check can be to evaluate whether Sysco generated enough free cash flow to afford its dividend. Fortunately, it paid out only 45% of its free cash flow in the past year.
It's positive to see that Sysco's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Fortunately for readers, Sysco's earnings per share have been growing at 15% a year for the past five years. Earnings per share are growing rapidly and the company is keeping more than half of its earnings within the business; an attractive combination which could suggest the company is focused on reinvesting to grow earnings further. Fast-growing businesses that are reinvesting heavily are enticing from a dividend perspective, especially since they can often increase the payout ratio later.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Sysco has delivered 5.0% dividend growth per year on average over the past ten years. Earnings per share have been growing much quicker than dividends, potentially because Sysco is keeping back more of its profits to grow the business.
To Sum It Up
Is Sysco worth buying for its dividend? We love that Sysco is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. These characteristics suggest the company is reinvesting in growing its business, while the conservative payout ratio also implies a reduced risk of the dividend being cut in the future. Overall we think this is an attractive combination and worthy of further research.
Curious what other investors think of Sysco? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow.
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
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If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.