Sell Sysco (SYY)
I’m selling Sysco (SYY) out of my Dividend Income Portfolio with this post.
The stock made a new 52-week high yesterday, April 6. That brings the dividend yield down to 3.38%. That was attractive when the economy recovery still seemed iffy and I was willing to trade some yield for safety.
But now that the recovery is more certain—if not the speed or momentum of the recovery (for more on those issues see my post http://jubakpicks.com/2010/04/05/so-yes-weve-got-an-economic-recovery-but-how-strong-is-still-an-open-question/ –I’m willing to stretch a little more for yield. To do that I need to clear a slot in this 10-stock portfolio and that means selling Sysco. Read more
Update Sysco (SYY)
On February 1 Sysco (SYY) reported earnings of 45 cents a share for the company’s fiscal second quarter. That was 3 cents a share above Wall Street projections. Revenue for the three months that ended in December 2009 was $8.87 billion, roughly matching analyst expectations for $8.83 billion.
The most encouraging news in my opinion came on operating margins.
Second-quarter revenue fell by 3.1% from the year-earlier period showing that the company and the economy aren’t yet out of the woods. But the company’s efforts to wring costs out of its distribution system paid off. Operating margin expanded by 0.6 percentage points in the quarter to 5.2%.
That matches the highest annual margin the company has recorded in any of the last 10 years. That bodes well for earnings and earnings growth as the U.S. economy picks up steam. Higher revenue at a higher operating margin would give an extra boost to earnings and the company’s continued cost-cutting should lead to gains in market share as it takes business from less efficient food service companies or buys them out right. Food service is still a very fragmented industry: Sysco is the biggest player by far at 15% market share. (The No. 2 company has a 10% share and the third largest just 3%.)
The company’s board of directors seems to have faith in that scenario. Sysco raised its quarterly dividend by a penny a share (a 4% increase) to 25 cents payable to shareholders of record on December 31, 2009. (I added these shares to the Dividend Income portfolio on December 8, 2009.)
At an annual rate of $1.00 a year, Sysco paid a yield of 3.52% as of February 18.
Buy Sysco (SYY)
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. Read more
