Food Distributor Sysco Delivers Steady Dividends

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Whether you dine at a restaurant, college or hotel, there's a good chance the food and related products were delivered bySysco ( SYY ).

The Houston-based company distributes food-service items to some 425,000 customers from 193 locations in the U.S., Bahamas, Canada and Ireland. Those customers also include hospitals, nursing homes and schools.

And Sysco aims to reach even more people. On Dec. 9 it said it's buying privately held rival US Foods, based in Rosemont, Ill., for $3.5 billion in stock and cash. The deal is valued at $8.2 billion, including $4.7 billion in US Foods debt.


The merger will create the biggest food distributor in the U.S., with estimated annual sales of more than $65 billion. The combined entity will likely command at least a quarter of the North American market -- and is likely to draw regulatory scrutiny.

Sysco's competitors includeCore-Mark Holdings ( CORE ), with annual sales around $9.5 billion, andUnited Natural Foods ( UNFI ), with $6.3 billion in sales.

Sysco expects the deal to close in the third quarter of 2014. Shares shot up 14% on the news. They're up 15% this year, lagging the S&P 500's 29% gain.

The food distributor is more of a typical income stock, providing slow but stable earnings growth and steady returns.

Last month it raised its dividend by 3.6% to 29 cents a share. That works out to $1.16 for the year, or an annualized yield of 3.2%, well above that of the S&P 500.

Sysco has paid out a quarterly dividend every year since its IPO in 1970. Core-Mark's annualized yield is roughly 1.2%, while United Natural Foods doesn't pay a dividend.

Annual earnings have trended mostly higher since 2006, with the exception of a 1-cent dip in 2009 and 2013. The fiscal year ends in June. The three-year Earnings Stability Factor is a stable 2 on a scale of 0 to 99. The five-year factor of 3 also indicates stable growth.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Personal Finance , Investing Ideas

Referenced Stocks: CORE , SYY , UNFI

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