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I‘m adding Sysco (SYY) to the Jubak Dividend Income Portfolio with this post. The yield isn’t terribly exciting, I’m admit, at 3.5% but it is still a bit better than you can get on a 10-year Treasury note right now. And I think the total return—that’s dividends plus capital appreciation—has the potential to top 25% in twelve months. (This buy also helps diversify this portfolio.)

The company recently raised its quarterly dividend, just a penny to be sure, to 25 cents but I think that’s a sign that Sysco sees better sales ahead with an end to the recession if not a return to robust economic growth. (Sysco’s cost cutting and its largest in its industry market share potentially make it one of the lean, mean earnings machines I described in my post http://jubakpicks.com/2009/11/20/nervous-afraid-to-stay-in-but-scared-to-get-out-join-the-club-and-read-my-three-strategies-for-coping/ . You’ll find a description of that kind of stock near the end in strategy #3.)

How has Sysco weathered the recession? In good shape, I’d say.

Sysco has been relatively successful in negotiating the slowdown in its core restaurant food supply business. Total company sales in the fiscal year that ended in June fell just 1.8%. The company has spent a lot of effort in recent years streamlining its distribution system and increasing productivity and that paid off even in the recession with operating margins increasing slightly in fiscal 2009 and again in the quarter that ended in September 2009.

I think a slower than expected economic recovery in 2010 will actually work to the company’s long-term advantage. Sysco operates in a very fragmented industry. The company is the largest food service distributor in the United States but Sysco has just 15% of what is estimated as a $200 to $300 billion market. Its largest competitor U.S. Foodservice has a 10% share and the No. 3 company controls just 3%. Sysco has doubled its cash position to $850 million over the last year and the company is in good shape to acquire smaller competitors if they falter in a slow-growth recovery. The company has made 150 acquisitions in its 40-year history.  

Full disclosure: I don’t own or control shares of any company mentioned in this post.