SYSCO Corporation (SYY), United Natural Foods, Inc. (UNFI), Core-Mark Holding Company, Inc. (CORE): A Leading Food Distributor for Long-Term Investors

Core-Mark Holding Company, Inc. (NASDAQ:CORE) is a bit more expensive than Sysco. At $66.70 per share, Core-Mark Holding Company, Inc. (NASDAQ:CORE) is worth around $768 million. The market values Core-Mark Holding Company, Inc. (NASDAQ:CORE) at 9.7 times its trailing EBITDA. Core-Mark Holding Company, Inc. (NASDAQ:CORE), the marketer of fresh and supply solutions to the convenience retail industry, is currently serving more than 28,000 customer locations in 50 states in the U.S. and five provinces in Canada. Cigarettes are the company’s main revenue contributor, accounting for 49% of the total 2012 revenue, whereas the non-cigarette products keep driving profits. In 2012, non-cigarettes products represented 68% of the total gross profit in 2012.

Looking forward, Core-Mark Holding Company, Inc. (NASDAQ:CORE) plans to grow its business through both market share gains and acquisitions. The company reported that it was seeing dollar stores and drug stores were selling items that used to be sold in convenience stores. The blurring of the different retail channels could create opportunities for Core-Mark. In the future, it will also spend its efforts on increasing market share in the traditional C-store space, including Turkey Hill and Rutter’s. For the full year 2013, Core-Mark expects to generate around $55 –$60 million in free cash flow.

Core-Mark seems to be a good stock for investors to hold in a long run, with a low valuation and the potential business growth. It also offers investors some dividends with a yield at 1.10%. Core-Mark has a much lower payout ratio at only 25%. If Core-Mark raises the dividend payout ratio to 63%, equivalent to Sysco’s payout ratio, Core-Mark could yield as much as nearly 2.80%.

My Foolish take

Long-term income investors should pick Sysco for their portfolios, because of its market leading position, the wide moat of a large distribution network and a nice dividend yield. The business could suffer in the short-run, but in a long run, I still think it will deliver a decent return to shareholders.

The article A Leading Food Distributor for Long-Term Investors originally appeared on Fool.com and is written by Anh Hoang.

Anh HOANG has no position in any stocks mentioned. The Motley Fool recommends Sysco.

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