SYSCO Corporation (SYY), Genuine Parts Company (GPC): Distribution Masters

Getting things where they need to go is an unloved business. However, there are some companies that excel at it and have rewarded shareholders with annual dividend hikes along the way. Genuine Parts Company (NYSE:GPC), SYSCO Corporation (NYSE:SYY), and Cardinal Health Inc (NYSE:CAH) are just such companies.

Widgets

There are companies that make things and companies that sell things. In the middle are the companies that get the widgets from the company that makes them to the companies that sell them. The distribution business isn’t sexy and companies are always trying to cut out the “middle man.” In the end, however, it is hard to get the scale needed to make distributing your own products worthwhile.

Food Stuffs

This is particularly true in the restaurant industry. While large chain restaurants can justify their own distribution networks, smaller chains, mom and pop shops, and large but single location establishments like hospitals can’t. So, they rely on a middle man like SYSCO Corporation (NYSE:SYY).

The company is the country’s largest food distributor to food preparing establishments. It sells everything from vegetables to plastic spoons. SYSCO Corporation (NYSE:SYY) has about 400,000 customers and over 180 locations throughout the United States, Canada, and Ireland. It has close to a 20% share of the U.S. food service distribution market.

Although the 2007 to 2009 recession has been a drag on the company’s business, it hasn’t stopped growing. Its niche is highly fragmented, so it has used the downturn and slow recovery to gain market share. Management claims that SYSCO Corporation (NYSE:SYY) has accounted for about half of the industry’s growth since the start of the century.

Revenues have been heading generally higher for a decade. The dividend has been increased annually for more than 10 years. Earnings have been more volatile and a little weak of late, but that should change as the economy improves. The range bound shares yield around 3% and would be a solid addition to an income portfolio.

Parts

Genuine Parts Company (NYSE:GPC)’ biggest unit, at about 50% of revenues, is its NAPA auto parts business. The company’s key ability is to supply parts to auto repair shops so they don’t have to stock inventory. The company is a leader in the space.

It is so good at getting parts to where they need to go, however, that it has ventured out into other business lines. The list includes machine parts, electronic parts, and office supplies. Although each is different, they all involve the same key strength.