Setting the table for dividends
Sysco raises its dividend and aptly handles the downturn in the food-supply business.
The yield isn't terribly exciting, I'll 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 12 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 leading market share potentially make it one of the lean, mean earnings machines I described in strategy #3 of this post.)
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 made a big effort in recent years to streamline its distribution system and increase productivity, and that paid off -- even in the recession -- with operating margins increasing slightly in fiscal 2009 and again in the quarter that ended 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 billion to $300 billion market. Its largest competitor, U.S. Foodservice, has a 10% share, and the number three 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.
At the time of this writing, Jim Jubak didn't own or control shares of any company mentioned in this post.
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
These ETFs are benchmarked to extremely out-of-favor foreign markets that most investors would quickly pass over. Whoever said being a contrarian was easy?
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.