Some investors rely on dividends to grow their wealth, and if you’re one of those dividend sleuths, you might be intrigued to know that Sysco Company (NYSE: SYY) is set to be ex-dividend in just 4 days. The ex-dividend date is one working day before the registration date, which is the deadline by which shareholders must be present on the books of the company to be eligible for the payment of a dividend. The ex-dividend date is important because the settlement process involves two full business days. So if you miss this date, you would not appear on the books of the company on the date of registration. Thus, you can buy Sysco shares before January 6 in order to receive the dividend that the company will pay on January 28.
The company’s upcoming dividend is US $ 0.47 per share, continuing the past 12 months when the company distributed a total of US $ 1.88 per share to shareholders. Based on the value of last year’s payouts, Sysco’s stock has a sliding return of around 2.4% on the current price of $ 78.55. Dividends are an important source of income for many shareholders, but the health of the business is crucial to sustaining these dividends. You have to see if the dividend is covered by profits and if it increases.
See our latest review for Sysco
If a company pays more dividends than it has earned, then the dividend could become unsustainable – which is not an ideal situation. Sysco distributed an unsustainable 137% of its profits last year as dividends to shareholders. Without more sustainable payment behavior, the dividend seems precarious. Yet cash flow is still more important than earnings in valuing a dividend, so we need to see if the company has generated enough cash to pay for its distribution. In the past year, it has paid out 154% of its free cash flow as dividends, which is uncomfortably high. It’s hard to consistently pay more money than what you generate without borrowing or using company cash, so we wonder how the company justifies this level of payment.
Cash is slightly more important than earnings from a dividend perspective, but since Sysco’s payments were not well covered by earnings or cash flow, we are concerned about the sustainability of this dividend.
Click here to view the company’s payout ratio, as well as analysts’ estimates of its future dividends.
Have profits and dividends increased?
Companies with declining profits are tricky from a dividend standpoint. Investors love dividends, so if profits fall and the dividend is reduced, expect a stock to be sold massively at the same time. So we’re not very excited that Sysco’s profits have been down 4.2% per year for the past five years.
Many investors will assess a company’s dividend performance by evaluating how much dividend payments have changed over time. Sysco has generated dividend growth of 6.1% per year on average over the past 10 years. The only way to pay higher dividends when profits go down is to pay a higher percentage of profits, spend money on the balance sheet, or borrow money. Sysco already pays out a high percentage of its income, so without earnings growth we doubt that dividend will grow much in the future.
Should investors buy Sysco for the next dividend? Not only is earnings per share declining, but Sysco is paying an uncomfortably high percentage of its earnings and cash flow to shareholders in the form of dividends. This is a clearly suboptimal combination which generally suggests that the dividend may be reduced. If not now, then maybe in the future. It’s not that we think Sysco is a bad company, but these characteristics don’t usually lead to a great dividend yield.
However, if you are still interested in Sysco and want to learn more, it will be very helpful for you to know the risks that this security faces. For example, we have identified 2 warning signs for Sysco (1 cannot be ignored) you must be aware.
If you are looking for dividend paying stocks, we recommend that you take a look at our list of the highest dividend paying stocks with a yield above 2% and a dividend coming soon.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in any of the stocks mentioned.