Sysco Just Announced a $29.1 Billion Acquisition and Wall Street Is Emotional. Is a 3% Dividend a Sweet Deal?
Sysco (SYY) just made its biggest bet in years. On March 30, the largest US foodservice distributor announced the $29.1 billion acquisition of Jetro Restaurant Depot, propelling it into a lucrative channel that caters to small independent operators.
The deal quickly increased Sysco’s scale but sparked a sharp selloff. SYY stock fell 15% on the day on March 30, marking the biggest one-day percentage drop since the March 2020 Covid-19 outbreak.
Investors are focused on the downside – $21 billion in new debt that will increase leverage from 2.9 times to nearly 4.5 times, 91.5 million new shares that dilute owners by 19.1%, the sudden end of Sysco’s massive buyback program, and S&P Global downgrading the credit outlook to Negative. At the same time, Sysco still offers a solid dividend of $2.16 per share, yielding about 3% at current rates, backed by 55 straight years of growth as the Dividend King.
Wall Street is nervous about all the liabilities and risks of making this deal work. But with that fixed payout, the big question is whether Sysco’s reliable dividend can entertain what looks like a high-stakes gamble. Let’s take a closer look.
Headquartered in Houston, Texas, Sysco is the world’s largest food-away-from-home distributor, selling and delivering food and related products to approximately 730,000 customer locations across restaurant, healthcare, education, lodging, and other institutional channels.
SYY stock trades near $72, down sharply from its 52-week high of $91.85. Shares are down about 2% year-to-date (YTD) and down 4% over the past 12 months. The stock has experienced significant volatility recently, with a 13% five-day drop largely caused by the acquisition announcement, which sent shares tumbling from a previous close of $81.80.
SYY stock has a forward price (P/E) ratio of 15 times, with a market capitalization of approximately $34.1 billion.
Sysco’s fiscal 2026 second quarter results showed sales of $20.8 billion, representing 3% year-over-year (YOY) growth. US Foodservice volume grew 0.8% overall and 1.2% locally, marking the third consecutive quarter of positive local case growth. Net profit rose 3.9% to $3.8 billion, while margins increased 15 basis points to 18.3%. Adjusted operating income increased 3.1% to $807 million, while adjusted profit increased 3.9% to $476 million. Adjusted EPS came in at $0.99, up 6.5% YOY, while adjusted EBITDA rose 3.3% to $1 billion.
Sysco ended the quarter with revenue of $1.2 billion and net income of $2.9 billion. Total debt to adjusted EBITDA stands at about 2.9 times, in line with the investment-grade balance sheet before the Jetro deal.
CEO Kevin Hourican highlighted the “strong results […] due to the growth of local cases” and the momentum of key programs while CFO Kenny Cheung emphasized “high quality performance throughout the income statement and cash flow.” The company’s figures underscore operating discipline as the market digests Sysco’s dynamic acquisition.
Sysco’s move to acquire Jetro Restaurant Depot for $29.1 billion marks a major expansion into the high-end, strong cash-and-carry segment. The deal includes $21.6 billion in cash and 91.5 million shares of SYY stock issued to Jetro shareholders. Based on the stock’s closing price of $81.80 on March 27, that values Jetro at about 14.6 times its operating earnings, or 13 times once factoring in expected savings.
To pay for it, Sysco is borrowing about $21 billion in new debt and using about $1 billion in cash or other sources. That will increase its leverage slightly, so management is halting share buybacks while focusing on paying down debt.
Jetro, which serves a $60 billion to $70 billion market, will operate as a division within Sysco. Management expects approximately $250 million in annual cost savings over three years, primarily from better procurement and supply chain efficiencies. Management also believes the deal should add mid-high single-digit percentage growth to EPS in the first year and then increase to the low to mid-range in the second year.
As for the budget, Sysco doesn’t touch us. The company recently announced its next quarterly dividend, keeping the annual payout at $2.16 per share, which translates to a yield of about 3%. The next payment is due on April 24, 2026, to shareholders of record on April 2, 2026. With a payout ratio of 45.73% and 55 consecutive years of growth, the dividend will remain strong even with this large acquisition.
Sysco recently confirmed EPS guidance for fiscal 2026, keeping earnings at the high end of $4.50 to $4.60 per share. Management is counting on at least 2.5% local sales growth in the second half of the year, as well as general pressure from day-to-day operations.
For the current quarter, analysts are looking for around $0.95 per share. That’s very close to the $0.99 it earned in the most recent quarter.
Based on 17 analysts with coverage, SYY stock has a consensus rating of “Average Buy”. Average target price of $90.78 points for a potential upside of 26% from current levels.
Sysco is paying full price for Jetro and borrowing a ton of money to make it happen, especially since interest rates are still high. That’s why SYY stock started to rise after the news. But the core business is still growing at a decent pace. Sysco throws up solid free cash flow, and has been paying solid dividends that have grown over 50 years.
I expect the stock to calm and gradually rise over the next six to 12 months as cost savings begin to materialize and those profits continue to grow. Sysco looks like a good buy right now for income investors who are OK with this big move.
At the date of publication, Ebube Jones had no (directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is for informational purposes only. This article was originally published on Barchart.com
