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Sysco Corporation (NYSE:SYY) is about to trade ex-dividend in the next 4 days. If you purchase the stock on or after the 3rd of October, you won't be eligible to receive this dividend, when it is paid on the 25th of October.
Sysco's upcoming dividend is US$0.4 a share, following on from the last 12 months, when the company distributed a total of US$1.6 per share to shareholders. Last year's total dividend payments show that Sysco has a trailing yield of 2.0% on the current share price of $78.87. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Sysco has been able to grow its dividends, or if the dividend might be cut.
Check out our latest analysis for Sysco
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. That's why it's good to see Sysco paying out a modest 47% of its earnings. A useful secondary check can be to evaluate whether Sysco generated enough free cash flow to afford its dividend. Fortunately, it paid out only 45% of its free cash flow in the past year.
It's positive to see that Sysco's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Fortunately for readers, Sysco's earnings per share have been growing at 15% a year for the past five years. Earnings per share are growing rapidly and the company is keeping more than half of its earnings within the business; an attractive combination which could suggest the company is focused on reinvesting to grow earnings further. Fast-growing businesses that are reinvesting heavily are enticing from a dividend perspective, especially since they can often increase the payout ratio later.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Sysco has delivered 5.0% dividend growth per year on average over the past ten years. Earnings per share have been growing much quicker than dividends, potentially because Sysco is keeping back more of its profits to grow the business.