I am toying with the idea of locking in gains on the Dividend Machine Sysco, symbol SYY. I love the industry. Everybody has to eat and SYY distributes food. Sysco may seem to be a boring stock but SYY has had enough price volatility to warrant selling at few calls. http://www.themoneymadam.com/2014/09/dividends-income-sysco-sybmol-syy-update.html
SYSCO DIVIDEND MACHINE FUNDAMENTALS
Sysco quailed as a Dividend Machine in 2011, 2012 and 2013. Due to price appreciation, SYY’s dividend yield is just over 3% and therefore, it does not meet the criteria to be a Dividend Machine in 2015. More significant is that EPS over the past four quarters are less than dividends paid out. This is not good for income investors.
TRIAN PARTNERS TAKE A POSITION
Friday, August 15, 2015, the stock price soared on the news that Trian Partners have taken a large stake in Sysco. SYY closed at $41.38 up nearly $3.00 and just short of the 52 week high of $41.45.
If SYY does what Darden did after activists took over, the stock could go up another 30 percent.
Indeed SYY’s stock price might benefit from Trian Partners influence, but the point of my investment strategy is to create ever increasing income. Darden has a better average dividend increase over 5 years than Sysco; 14% versus 4%. Yet Darden has kept the dividend flat for 8 quarters since the activists took over. This could happen to SYY also.
We income investors, need more income and we would have to bet and be right that the activists who are coming into Sysco will have the kind of success that stimulates significant stock price appreciation. Once that happens you can sell and move the money into a higher yield. But what if it the activists are not successful.
When I have this much turmoil in my mind, I turn to covered calls. This Monday, I will look for covered calls. On Friday a September $42 call fetched about $1.00 a nice premium but the expiration is too short, you might have it called away before the expected next ex-dividend date of 10/1/2015. A November $42 has a premium of $1.60 and the $44’s premium was $1.00. This is the call that most intrigues me.
When the market opens, I will make my decision. I will not just sell SYY or set a stop and I would never pay money in the form of buying a put to lock in a gain but I am worried about SYY as an income machine. Let's hope someone wants to buy our covered call.
Good Income Investing.
Disclosure: Long SYY