Two Paths to Value: Short-Term Yield vs. Long-Term Growth in Distressed Markets

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While dividend growth remains the core of what we do, it’s not the only path to building an income stream. In times of market distress, opportunities emerge that are simply too compelling to ignore. When venturing into troubled waters, the key is to stay disciplined and unemotional. Volatility may test you, but the potential rewards can be worth it. 

In this episode, Greg explores two distinct approaches to finding value from an income perspective. In the first half, he discusses business development corporations (BDCs), which often offer eye-catching yields north of 10%. Using Oaktree Specialty Lending Corp. ($OCSL) as a case study, he unpacks how BDCs are structured, where their income potential comes from, and why they carry above-average risk. More importantly, he shares why patience and preparation are key to capturing value when these high-yield opportunities go on sale. 

In the second half, we shift gears back to a more traditional name for dividend growth investors. Greg introduces Sysco Corp. ($SYY), a 50-year dividend payer in the essential world of food distribution. Unlike the high-yield, high-volatility world of BDCs, Sysco represents steady, well-managed growth with consistent operations. Even though the stock appears to have been in a holding pattern over the past few years, it fits squarely into our 10-year framework. 

In both cases, price discipline is essential. 

Topics Covered:

01:46 – Introduction to BDCs (Business Development Corporations)

05:18 – Oaktree Specialty Lending Corp Case Study 

14:57 – Knowing What You Own: Risk and Return in Distressed Markets 

16:23 – When and How to Buy BDCs 

19:22 – Total Return Recap from a Past Investment in Oaktree 

24:37 – Transition to Traditional Dividend Growth: Enter Sysco Corp 

28:17 – The 10-Year Model: Can Sysco Double? 

30:08 – Margin & Capital Efficiency Strengths 

32:52 – Comparison to Competitors 

35:05 – Valuation and Price-to-Sales History 

35:29 – Risks: Cyclicality & Debt Load

 38:58 – Why a “Boring” Food Distributor Might Outperform 

41:39 – Wrapping Up: Patience, Price, and Knowing What You Own 

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Transcript

[00:00:11] Greg Denewiler: 

This is Greg Denewiler, and you are listening to another episode of the Dividend Mailbox, a monthly podcast about dividend growth. Our goal is to stuff your mailbox full of dividend checks. When they grow over time, a funny thing happens, you create wealth. 

Welcome to episode 47 of the Dividend Mailbox—which I might add is now trademarked. It's kind of cool, at least from our standpoint. But today we're going to look at two different ways to view value from an income standpoint. One of them will be our traditional dividend growth situation. We have an idea that we will share with you, a new one that we haven't talked about before. Then we're also going to start the episode with a way to look at value from an income standpoint. But here it's not going to be long-term income growth. It's going to be a way to get an extremely attractive income and to get equity-like returns out of it. So with that, we will get into episode 47. 

We are going to start with a topic that we brought up in episode 20—we went into business development corps. Normally we're all about dividend growth, and our strategy is Dividend Growth from Blue Chip America, but the first half of today's episode is going to be a slight twist. We're going to call it Current Income from Blue Chip America. It's a slight spin, but I think you'll probably get the point here in a few minutes. As we have stated in some of our previous podcasts, dividend growth is the core of what we do, but it is not everything we do. There are other ways to find value, and there are definitely other ways to find an income stream. And anytime we think we can find value and we're going to get paid for it, we're going to look at it. So our income stream usually starts around 3% plus or minus, because that's what a quality dividend growth story looks like, where we've got sustainable dividend growth. But in these business development corps, it's a different story because most of them yield 10% or more. Clearly, it can be a substantial yield enhancer, which in the long run is great for compounding and total return. It's not sustainable dividend growth by any means. However, the income is very attractive. 

And if you don't know, in a business development corp, they are companies that go out, they raise equity and then they use a lot of debt—usually, a lot of times it's one-to-one. Then basically what they do is they lend money to middle market companies, which means they're too big for small banks because they're borrowing maybe $10, $20, $50 million, some of them are a hundred-million-dollar loans. They're not big enough to do corporate bond issues in the marketplace. Usually, those are a hundred million or more because of the fees to make it efficient. So there's kind of a middle ground here where they get lost a little bit. If a company needs $30 million, a business development corp, quite likely is a place where they're going to go to borrow money. BDCs are big sources of credit for that marketplace, and because the yields are a little higher on most of these companies—they're not the mature blue chip company—they're going to pay a higher yield. And right now most of these business development companies, because they're using leverage, pay dividends of 10% plus. And this is very important: for the most part they’re really are a form of debt. They invest in debt of companies and they act somewhat like high yield debt securities. Some of them do have a little bit of an equity component in them. They are somewhat complicated and they do have different business models as far as how they approach lending and how they use equity and debt. So we're just going to keep it at a high level because in the end, what they're after is generating very attractive current income. 

The reason why I'm bringing them up is because there may be an opportunity coming in these things, and we're going to build a story around what it would look like if the opportunity actually shows up, and we got a hint of it about a month ago. 

So there are a lot of these business development corps that trade out there, but we're going to specifically go back and talk about Oaktree again today. We do own a small position in Oaktree Specialty Lending Corp, and it isn't necessarily the best one out there, but it is managed under Oaktree. One of the founders is Howard Marks, who has a lot of good content out there. He has a great letter that he puts out roughly quarterly that's worth reading, and he is known for really specializing in the distress debt area. It's worth doing your own homework to figure out which one of these maybe fits be best for you. You'll really have to be careful with what they're actually doing because it can really drive the performance of them. Oaktree is the one that we have followed relatively closely, and what I would like to do is just go through Oaktree and just talk to you about what happened there and what could happen here in the coming months. 

So going into Oaktree right now, they've got a portfolio that's almost $3 billion. They've got 150 companies inside the portfolio. These are large, well-diversified companies. But virtually all the companies that are inside their portfolio are rated below investment grade. More than 80% of their portfolio are what they call senior debt securities, which means they are first in line if there's a default, however, 90% of their portfolio is floating rate debt. So that does make it a little bit more complicated as far as how interest rates impact the value of the fund. They do increase the interest payments if interest rates go up, but there are other factors that really drive the bus on the value of these things. And one of the big ones is credit spreads. So they're not simple to analyze as far as what the risk is. 

Now part of the appeal to these things, in the case of Oaktree, it trades as a closed-end mutual fund. Most of these BDCs are closed-end, and there's really one big reason for that. You cannot go to Oaktree and say, “Hey, I want my money back.” I put a dollar in. If the asset value is a dollar, they give you a dollar back. You have to go into the marketplace and sell it, and it totally trades on the perception of what the market is willing to pay for it. So they don't have to worry about, if things start to look worse, that you're going to go and ask for your money back. That's what happens on a regular mutual fund, an open-end mutual fund. So the positive is they don't have to liquidate their portfolio in a distressed market environment. However, what does happen is that investors can get extremely nervous and start selling these things. That's when they start to go to big discounts. One of the big things that you need to pay attention on these Business development corps is what their net asset value is, because what you pay, you're going to get a yield. They're going to generate an income based on the loans of the portfolio and the net asset value. If it's one, that means that you're basically paying a dollar for a dollar's worth of loan portfolio. Well, depending on the perception of the market and what's going on, what interest rates are doing, they will trade at a premium or they can trade at a discount. 

As we went into the whole tariff scare, and this is what really drives the bus on these things, is the whole perception of credit quality. So within one week it had gone from $15 a share to below $13, it dropped down to $12.94 I believe was about the low. Well, as it appeared that the whole tariff situation was going to get walked back a little bit, just in a matter of two days, the stock rallied back up to almost $14, took another little bit of a dip, and then by the end of April it was all the way back to $15 a share. Currently it's come back down to $13.40 because this whole tariff situation is being drawn out farther than what people were expecting or hoped for, maybe is a better word. So now they're starting to get priced with the possible fear of a recession. However, it's trading at around $13.40 as of the day we record this, but its actual net asset value is $16.75. That was just as of the first quarter that was reported about a week ago. Its trading price actually is 80% of what its net asset value is. So right away you can start to see where, “Hey, there's some value here because I'm able to buy one dollar’s worth of an asset for 80 cents. That seems like a good deal.” 

Well, in a normal world it is. The dividend yield on it, it pays about a $1.65. On the net asset value of $16.75, that's roughly a 10% yield. But right now you are not paying $16.75 for it, you're only paying $13.40, so that bumps your current yield up to almost 12.5%. Obviously, the story right now appears to be getting better and better. 

So the next question would be, why don't I just buy this thing now? The reason why you may not want to buy it yet, and personally I think it's a little early, is because we're going to look at what happened in 2020. And if you go back to 2008, the story's the same. You probably want to be patient with these things because even though you're earning 12% on your money, if you just hold this thing for three years, just simple math, you've got almost 40% of your money back. Well, if we go back to 2020, on February 14th, 2020, single B rated bonds had a yield of 5.18%. Triple C rated bonds had a yield of 11%. Well, that's basically the space where these business development corps live. But again, I can't stress enough, you really have to look at each specific one and realize what you own. If you don't know, you can potentially get a huge surprise. Because just in the space of a month and a half, the yield on single B rated bonds had jumped to 10%. They had doubled, and the yield on triple C bonds had gone to 19%. They had doubled. But the problem is when you have a bond yielding 20%, it's not worth a whole lot. The point to remember with these things is credit risk can really overshadow everything, and you're going to see this illustrated by what the price did in Oaktree. If you look at February 21st, 2020, it was trading at an 80% value to its net asset value. So it was trading in a discount about 20%, which happens to be right around where it is right now today. But what happened was over the space of the next several weeks, as the economy started to shut down—I'm sure you're all aware of what happened in the pandemic—the discount just started to collapse. When you get to March 23rd, 2020, the discount had dropped all the way to 35 cents on the dollar. The fund was trading 65% below what the actual underlying portfolio was worth. So you had the price of it at $15.30 and on March 5th. By March 17th, it dropped to $11.55 cents, and by March 23rd, it was all the way down to $7.08. More than a 50% decline on your position within a month. 

It was distress, it was a panic, and that's what happens when you get the perception that defaults are about to spike up dramatically. Normally, default rates on B rated bonds, 25 year average is around 2.3%. In 2020, they hit 6%. Triple C rated bonds, the default rates went all the way to 20%. Just that one notch of credit rating had a substantial difference in what happened to the price of the bond. So that is one thing you really have to keep in mind on these things. Well, in March of 2020, Oaktree was paying a dividend of a $1.65. If you happen to buy it at $7, you got a 23% yield on your investment. Even if 20% of the bonds defaulted, you are in good shape. And that's the whole point of this, to really know what you own and to look for distress. 

If this whole tariff situation takes us into a recession, and I am not saying it is, but you really want to be prepared for what you want to do with these things. Here's how fast things can change. As I said, March 23rd, the value of Oaktree had dropped all the way down to $7.08 cents. Three days later, on March 26th, Oaktree had recovered to $10.53. It had already gone up about 35% in just three days. You go out to May 8th, 2020, the price was up to $12.80. You go out to the beginning of 2021, January 4th, the price was up to $16.80 and by January of 2022, we were up to $23. The economy had recovered. There was lots of liquidity in the system, and the dividend was still a $1.65. So you're sitting here earning an unbelievable income, and you have just tripled your money on the price of Oaktree. 

Now, just to give you a heads up, which is the whole point of what these podcasts are, we try to use them as learning experiences, and we're just going to tell you kind of what we think and what our target is. You don't have to pick the bottom, you don't even have to get close to the bottom, which is the good news. When you've got an income stream that these things start to yield as the discounts go down, all you have to do is just be slightly patient. The real point where I think you really want to seriously start to look at these things is when you get below 70 cents on the dollar, at least a 30% discount to its net asset value, which is what they do when we get into a situation where the market fears we're in a recession. You'll see it in the bond yields, you'll see them spike in single B rated bonds or even triple C rated bonds. If you get below 70%, you can start buying these things with confidence. I will tell you in 2009, the lowest the discount got to was 46 cents, 46% of the asset value. And here's how fast the recovery can happen, just to give you another idea. On October 9th of ‘08, the discount was 46%. By September 8th of ‘08, just a month later, it was back to 81 cents. Now it did dip back down again, but the moral of the story is: on these things, they get cheap, you buy them. You have to know what you want to own because you don't have a whole lot of time to do it, and you cannot worry about buying the bottom of these things. If you're worried about price, you have no business looking at these things because these things can get really scary, really fast. But if you understand, they're not all going to default, and you understand what the credit quality is. If you have default rates that peak at around 10% for the B sector, even if they go to 20% for the Triple C, if you can buy something at a 20% yield, you're in good shape and you cannot worry about maybe this thing goes down another 25, 30, 40% in the next five days, because that's what can happen. 

When you're getting paid to take the risk, you really just have to sit down and look at the simple math. In this case, when you have yields approach 20% on what you're buying and what you're earning in income. Even if the asset doesn't recover in price, in three years without even any compounding, you roughly have gotten 60% of your money back. But another point to remember is because these are debt securities and they are, most of them are variable debt. The yield went up from when we bought it. We got into an environment where they were actually raising interest rates. It's actually just in the last quarter dropped a little bit because interest rates have come down. That's one reason why you have to approach this as debt and something where you perceive there's value in it as opposed to a long-term growing dividend stream, because it's not. 

However, reinvesting in these things can make a big difference, and ironically enough, it can actually become a negative. The best way I can explain that is on March 12th, 2020, the stock was coming down. It had gotten down to $9.50, which is where we had an average cost to where we purchased it. And as I had mentioned earlier, it did end up going to $7 just within a few weeks later before it turned up. But if you consider our purchase price of $9.50 and all the dividends that we have received, which none of them were reinvested, we took cash on all of them. As of today, this recording, the total return on it has been 146% in the space of just slightly more than five years. We have more than doubled our money. The first full year of dividends that we got off of this, when we bought it, it paid 14% the last full year of dividends that we received based on our original cost basis, we were earning 23%. In that five-year period, because we bought it cheap enough, we have earned a total of 105% just in the income that it is thrown off. But here's where this gets kind of fascinating, back to the fact that you own debt so it becomes more sensitive of what you pay, and potentially, these are not long-term holdings, especially because this is a lower quality, it's much more cyclical. If we would've reinvested all of the dividends, we would be up 97% right now, we'd have a return that's about a third less than what we actually realized. And the reason for that is because Oaktree had a high of $23 a share. It's now backed down to the thirteens. If we had reinvested all those dividends, we would've been buying some of it up in the twenties. We would've had a loss on those shares, so that would've brought the total return down. 

We took the cash, we obviously did other things with the money and either bought other investments with it, or at the very minimum it just stayed in money market, which in the last few years has earned 4%. And it's our opinion that one of the ways you help control the risk in these things is that you don't reinvest back into these BDCs as the prices recover. That way, you're not subjecting your cash to any additional risk where you're paying more and you don't have the same margin of safety. 

Now, incidentally enough, our 146% return actually equals the S&P 500. On a total return basis on it for the same period from March 12th, 2020 to the date of this recording, it's up 145%. We basically have matched the S&P 500, but if we would've sold this thing last year, it would've had a really strong return. You know, you try to learn something from what you do. We had a big move in it. We knew that debt was getting very expensive, meaning the yields had really come down to where you were not getting paid much for the additional risk you were taking for these lower-rated bonds. The reality is we never had a full position in it. We never really even had a total of a half position in it. We had a target of selling it in the low twenties. It actually did hit it. The current yield of 12%  we were getting on it on the current value, not even to mention what we had paid for it, it really just seduced me into saying, “Well, we'll just continue to hold it because it does pay really well.” I'm not going to call this one a mistake because we've still got a great return on it, but we are looking for the next entry point. And if we do get into it, if it becomes a bigger position, we definitely want to focus on more discipline. 

We'll just have to see. At the moment, the tariff situation appears to be maybe starting to head towards some resolution, but if the opportunity presents itself, you have to be ready. You have to know what you own. You have to know why you own it. The window to buy these things can be extremely short. The problem we run into is that we're not going to issue a special podcast telling you we're buying it. We're just telling you that we're watching it, and kind of the parameters that we're looking for so that you could take advantage of it for yourselves, or as a kind of a self-plug, that's part of what we get paid to do. Also, remember that this is something that may not be for everyone, but I would encourage you, if you are interested in them, that it's probably worth your time to look at the whole sector. 

So with that, I hope you got something out of this one and now we're going to move on to a new idea, back to the heart of what we do, where we're actually looking for dividend growth. It's kind of a real switch here from talking about 20% yields to now we're going back to 3.5%, but they're two different scenarios. 

What we're going to turn to now is Sysco, and it's not Cisco Systems, the tech company, which is probably what you wish it was. This is Sysco Corp, the food distributor. I know you've seen them, whether you paid attention or not, is a different story because their trucks are out everywhere. They deliver food to restaurants, hotels, and anywhere where there's food service. They're nationwide. They're actually overseas, they have some business over in Europe. They are growing over in Europe, which actually, this is one thing that is a little bit unique. Most of the rest of their competition really is pretty much just US based. Sysco has been paying a dividend for 50 years plus. This thing is right in the middle of the whole dividend growth story. There's a couple of reasons that attract us to this, hopefully you get the picture as we go through it. One of them is, it's gotten to a point where it's cheap enough that we feel confident we can buy it down here, or at least it's getting really close to where it's got some good, long-term attractive returns built into it. 

Just to give you a quick overview, the revenue last year was $78 billion. They have grown from $51 billion in 2021 to now. All of these, uh, food service companies are really in the same situation. You're coming out of 2020. It's probably one of the hardest hit industries out there because restaurants, for all intents and purposes, had completely shut down. The fact that these guys even made money in 2020 and 2021, I think is a testament to why this is something—given price—if there's a point where we can get in it, it's a great long-term hold. And I have to tell you, we're going to get into a comparison later, but food service was so boring that Warren Buffett decided that he should probably be in the business because Brookshire Hathaway owns McLane, which is one of their competitors. 

Anyway, back to Sysco. They had earnings of a $1.44 in 2021. Right now they earn $4.31. Earnings have grown 44% a year for the last three years, revenue has grown 13% a year. Their publicly traded competitor is US Foods. Their revenue in the last three years has grown 9% a year, and their earnings have grown about 27% a year. What that really implies is Sysco has actually been taking market share because they've been growing faster. Dividend yield right now is touching 3%. Historically, it trades in the 2% area, low to high 2%. So just from a yield standpoint, it is near a high for the last 10 years, with the exception of 2020 when the stock was hit really hard, but it came back quick. 

We should probably start with the end in mind. Because one of the things that we always talk about is our simple 10-year model, where we look at, okay, what has to happen for us to double our income and for us to get a total return—we target a hundred percent, a double in 10 years. At a dividend currently of $2.16, and if they grow it by 5% a year, which right away, if you're a loyal listener, you should say, wait a minute, you guys want 7%? Now you're talking about five. Well, we'll get to that in a second, but if you use 5%, then the dividend will grow to $3.35 by 2034. If it trades at a 3% yield in 2034, and you buy it at a 3% yield, currently, you've got a 98% total return for 10 years. So it does meet the double your money in 10 years threshold. I think that it's possible that you might be surprised going forward because that 5% number is, I think, conservative. But one of the places where I got that from is both ValueLine and Morningstar project their dividend growth to be about 5% a year going out for the next five years, four to five years. So I just used 5%, but it's enough to make this story work. Well, ValueLine estimates their earnings in 2029 to be $6.25. If Sysco stays at a 50% payout, which is what their norm has been historically, then if they get to a little bit more than $6 of earnings, that gets you through a $3 dividend and that's a 9% dividend growth. So if we factor that in, the returns just get much better. But we're going to stick for the rest of this for 5% because that's all we need, and it gives us some margin of error. 

So back to why we think it's sustainable. First of all, their gross margins. Since 1990, they've averaged 18.85%. Currently, they're 18.52%. Operating margins since 1990, they've averaged 4.03%. Right now they are 4.06%. Well, that was the end of the fiscal year in June of 2024. Morningstar estimates that their EBITDA margins, currently they are 5.3%. They project them to be 5.5% out in 2029. Looking at the consistency of management, looking at return on invested capital, which is another thing we really like to pay attention to—we like to see numbers that are 10% or higher long term. The reason for that, just simply theoretically, their cost of debt is less than 10%, the cost of equity is 10%. If they earn more than that long term, they should grow shareholder net worth. But that's a very simple statement. We'll leave that at that for right now. Sysco currently has a 15% return on invested capital. That's basically what they've averaged for the last 15 plus years. They did dip down a little bit in 2015, 2016. In 2020, they got as low as 3%. They came back pretty quickly. They were back to 13% in 2022, and Morningstar, out in 2029, they've got it estimated at 22%. Now, I will say on return on invested capital, some of these firms use slightly different ratios of how it's calculated, but another simple way of determining acquisitions, or is a company good at it? Well, if you look at their incremental return on invested capital, it's right around 15% too. What that means is: as the balance sheet grows, the amount that it grows by, that is as profitable as the core business. So that's another major that is a positive. The moral of the story is. You've got a company that's just been extremely consistent and very disciplined in how they manage their business. There shouldn't be an issue of whether Sysco can continue to grow its dividend. 

I mentioned that Berkshire Hathaway owns McLane. They bought it several years ago. Actually didn't check to see when, really doesn't matter, but I can tell you they've owned it for quite a while. Currently, McLane, they have revenue of about $52 billion. US foods, they have revenue of $37 billion. Sysco is $78 billion through to the end of 2024. So Sysco is the big player. The pre-tax margins for McLane are 1.2%. The pre-tax margins for US foods is 1.7%. Sysco is 3.2%. Sysco is the most profitable of the bunch. And if you go back two years ago, 2022, McLane, they only had half of 1% for a pretax margin, and US Foods had 1.06%. Sysco was 2.55%. You have to remember, this is coming out of 2020 so they were lower, but Sysco is the most profitable one. From a standpoint of moats, which is always good, Morningstar has it as a wide moat. And the reason why, even though it's a commodity business to a big degree, though it is more selection, it's more dependability, predictability. And because they are the biggest player, they have alternate sourcing materials to where they can always provide and to provide some alternatives when you get into pricing problems. And here's another thing that you should keep in mind. When we've gone through the food inflation that we've had in the last few years, Sysco has been able to maintain their margins and they've been fairly stable. I think it's just a great positive. 

You look at price to sales, which is a good valuation that doesn't have the volatility of earnings in it. If you go back to the average since January of 2000, it usually trades around 0.59x. In the past five years, it's had a high of 1.0x. The minimum has been 0.41x, which would've taken you back to 2020, and the average has been 0.59x. It's really been a pretty consistent stock. The good news, you know, which has got it to a point where we feel pretty confident that we can do something with it now is, currently it is 0.43x, so it's pretty close to the low side of where it normally trades. 

Well, Okay, what part of the story maybe doesn't look so good or there's always something? Well, one of the reasons why I think it's cheaper right now, or it's gotten cheaper is because these things are somewhat cyclical and they are cyclical due to the fact that if we go into a recession, people tend not to eat out as much. That's one of the things that's pretty easy to cut. I think you probably have a little bit of a fear that the economy, with everything that's going on, that consumers maybe will cut back, and that is why Sysco is giving us an opportunity right now. Do you ever know for sure? No. But all you can do is take educated guesses and that would be mine. 

Another thing that, originally in looking at this, I will tell you, it spooked me somewhat. Starting around 2016, 2017, they really ramped up the amount of debt that they have. And it's to a point where their debt-to-equity ratio is up around six to one right now, so it's fairly high. Normally, that alone would cause you to say, this is a potential disaster waiting to happen. The first thing that goes wrong, and they've got some real problems. I think in this case, that is not really a concern for a couple of reasons. Number one, Sysco earns five times what their interest costs are, and that gets them up into the a category of A bond rating. If you go back to 2016, they were five times. If you look at the stress time of 2020 to 2021, they dropped all the way down to 1.6 times. That tells you they still earned their interest costs, even in a pretty distressed environment. I view that as enough margin of safety that I'm not going to worry about it. The second thing is they do have liquidity, and if you look at their bond maturity structure, they have a total of about $12 billion of debt. You could potentially even argue that this is maybe even a potential competitive advantage, because they have $5 billion of it that's at 3% or below. And the maturity schedule, they have about $365 million that matures in 2025. They have $700 million in 2026, about $1 billion in 2027. It's spread out all the way going out to 2052. It's well laddered out. Between 4% and 5%, they have just under $3 billion. And at 6% they have about $2.3 billion. You've got a pretty attractive interest rate that they've got locked in long term, and the maturities at 2030 and greater are about $7.3 billion. 75% of their debt is out more than five years before it matures. They have good liquidity. They have, I think, a lot of flexibility with the balance sheet. So I'm not too worried about the debt on Sysco. 

Now, you might be thinking you've listened all this time. Why would I want a company that sells food? It always amazes me how some of these simple businesses can be real surprises. If you go back to January of 2000, you already know the answer to this, Sysco beats the S&P 500. The S&P 500 is up 520%. Sysco is up 604%. However, if you look at how the stock has performed in the last four years, you might say, you know, this thing really isn't going anywhere. Well, I'm going to give you my guess as to why. First of all, it's obvious in 2020, the business was severely impacted by the pandemic. It took them a few years to really recover from that. And then as you go into 2023, 2024, you had the whole magnificent seven. You had the whole obsession with growth in tech, and a lot of the more value-driven companies really were left in the dust. And then as you get into now as we are, possibly going to go into a recession or there's a fear of one. This is cyclical on some level, so that has probably left the stock really trading flat for the last four years or so. But good companies, when you see an opportunity, that's how you can make money. 

Full disclosure, we do own a small bit of it, and we actually did buy some in 2020. Not much. It was a real leap of faith because it looked like, you know, holy cow, are these guys going to be able to survive? But at this point it has gotten cheaper. We're looking to start a position in it. Currently our price discipline is $70 or below, but we reserve the right to change that, and the lower it goes, the better we're going to feel because this is one that I think you can really hold for a decade or longer and be in great shape. If you kind of step back and think about it, they really only stand to benefit as the economy evolves. Looking at the whole AI scenario, it'll help their delivery, probably their inventory. Electric vehicles, it'll help their distribution. So they really stand to benefit from any of the technology advancements that come along. And it's probably why Warren Buffett owns a business that's identical to it. But incidentally, Sysco seems to be better managed. 

So as we wrap up, hopefully what you take from this is one we do use price discipline and how we apply it. In the BDC world where we were looking at Oaktree, it really pays to be patient and to understand the opportunity there can present itself extremely quick. So you really need to know at what point you feel comfortable owning it, because you may not have any real time to do much work on it. You can make a lot of money in these things, but you have to look under the hood to see what's actually going on. And Sysco, we see it as a pretty good path towards dividend growth, and there is definitely sustainability built into it. We have our simple 10-year model, and part of it is that we need that price discipline to give us the potential 10-year return that we're looking for. 

So when you get to a point where it looks like you've got decent margin of safety, you've got decent value, you can always leave some extra room to acquire more. But long-term successful investing is just a pure function of believing in what you do, and then just do it. 

If you enjoyed today's podcast, please leave us a review and subscribe. If you would like more information regarding dividend growth or our investment strategy, please visit growmydollar.com. There you'll find previous episodes and also our monthly newsletter. If you have any questions or anything to add to today's episode, please email ethan@growmydollar.com. 

Past performance does not guarantee future results. Every investor should consider whether an investment strategy is right for them and all the risk involved. Stocks including dividend stocks are volatile and can lose money. Denewiler Capital Management may or may not have positions in the publicly traded companies mentioned herein.