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.
TheMoneyMadam
Disclosure: Long SYY
