Sysco (SYY) just made its biggest bet in years. On March 30, the largest U.S. foodservice distributor announced its $29.1 billion acquisition of Jetro Restaurant Depot, propelling it into the high-margin cash-and-carry channel serving smaller independent operators.
The deal instantly boosts Sysco’s scale, but has sparked a sharp sell-off. SYY shares plunged 15% intraday on March 30, marking the largest single-day percentage drop since the March 2020 Covid-19 crash.
Investors are focused on the downsides: $21 billion in new debt that will increase leverage from 2.9 times to about 4.5 times, 91.5 million new shares that will dilute owners by 19.1%, the sudden end of Sysco’s large buyback program and S&P Global cutting the credit outlook to Negative. At the same time, Sysco still offers a solid annualized dividend of $2.16 per share, yielding around 3% at current prices, backed by 55 consecutive years of increases as Dividend King.
Wall Street is nervous about all the debt and the risks of making this deal work. But with that steady payout, the big question is whether Sysco’s reliable dividend can sweeten what seems like a high-risk bet. Let’s take a closer look.
Headquartered in Houston, Texas, Sysco is the world’s largest out-of-home food distributor, selling and delivering food and related products to approximately 730,000 customer locations in restaurants, healthcare, education, lodging and other institutional channels.
SYY shares are trading near $72, well below the 52-week high of $91.85. Shares are down about 2% year to date (YTD) and 4% over the past 12 months. The stock has seen significant volatility recently, with a 13% drop in five days largely attributable to the acquisition announcement, which sent shares reeling from a pre-deal close of $81.80.
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SYY stock has a forward price-to-earnings (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, reflecting year-over-year (YOY) growth of 3%. U.S. foodservice volume grew 0.8% overall and 1.2% locally, marking the third consecutive quarter of positive local case growth. Gross profit rose 3.9% to $3.8 billion, and margins widened 15 basis points to 18.3%. Adjusted operating income rose 3.1% to $807 million, while adjusted net income grew 3.9% to $476 million. Adjusted EPS was $0.99, up 6.5% year-over-year, while adjusted EBITDA rose 3.3% to $1 billion.
Sysco ended the quarter with $1.2 billion in cash and total liquidity of about $2.9 billion. Net debt to adjusted EBITDA stood at around 2.9 times, consistent with an investment grade balance sheet before the Jetro deal.
CEO Kevin Hourican highlighted “strong results (…) driven by stronger local case growth” and momentum on key initiatives, while CFO Kenny Cheung emphasized “high-quality performance on the bottom line and cash flow.” The company’s numbers underscore operating discipline even as the market digests the transformative Sysco acquisition.
Sysco’s decision to acquire Jetro Restaurant Depot for $29.1 billion marks a significant expansion into the resilient, high-margin cash-and-carry segment. The deal includes $21.6 billion in cash and 91.5 million SYY shares issued to Jetro shareholders. Based on the stock’s $81.80 closing price on March 27, that values ​​Jetro at about 14.6 times its operating income, or 13 times once accounting for 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 for a while, so management is pausing share buybacks while it focuses on paying down debt.
Jetro, which serves a $60 billion to $70 billion market, will operate as its own segment within Sysco. Management expects about $250 million in annual cost savings within three years, primarily thanks to better purchasing and supply chain efficiencies. Management also believes the deal should add mid-to-high single-digit percentage growth to EPS in the first year and increase to low-to-mid-single digit percentage growth in the second year.
As for the dividend, Sysco won’t touch it. The company just declared its next quarterly payout, 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 increases, the dividend will remain strong even through this large acquisition.
Sysco just reaffirmed adjusted 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% growth in local sales in the second half of the year, in addition to the usual boost in daily operations.
For the current quarter, analysts expect around $0.95 per share. That’s pretty close to the $0.99 earned in the most recent quarter.
According to 17 analysts with coverage, SYY stock has a consensus rating of “Moderate Buy.” The average price target of $90.78 points to approximately 26% upside potential from current levels.
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Sysco is paying full price for Jetro and borrowing a lot of money to make it happen, especially with interest rates still high. That’s exactly why SYY stock plummeted right after the news. But the core business is still growing at a decent pace. Sysco generates strong free cash flow and continues to pay a solid dividend that has been collected for over 50 years.
I expect the stock to calm down and slowly rise over the next six to 12 months as the cost savings start to kick in and that dividend continues to accrue. Sysco looks like a good buy right now for income investors who are on board with this big move.
As of 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 are for informational purposes only. This article was originally published on Barchart.com
