Dividend Aristocrats In Focus: Cintas Company

Up to date on February twentieth, 2025 by Felix Martinez

Most dividend development buyers goal for rising dividend earnings over time. We imagine one of the simplest ways to realize that is to give attention to high-quality dividend development shares.

For the best-in-class dividend development shares, think about investing within the Dividend Aristocrats, a choose group of 69 corporations within the S&P 500 Index with 25+ consecutive years of dividend will increase.

You’ll be able to see a full downloadable spreadsheet of all 69 Dividend Aristocrats, together with a number of necessary monetary metrics corresponding to dividend yields and price-to-earnings ratios, by clicking on the hyperlink under:

Disclaimer: Positive Dividend shouldn’t be affiliated with S&P International in any approach. S&P International owns and maintains The Dividend Aristocrats Index. The data on this article and downloadable spreadsheet relies on Positive Dividend’s personal evaluate, abstract, and evaluation of the S&P 500 Dividend Aristocrats ETF (NOBL) and different sources, and is supposed to assist particular person buyers higher perceive this ETF and the index upon which it’s primarily based. Not one of the info on this article or spreadsheet is official knowledge from S&P International. Seek the advice of S&P International for official info.

We evaluate all 69 Dividend Aristocrats annually, and the following inventory within the 2025 sequence is Cintas Company (CTAS). Cintas is a high-growth dividend inventory. It has raised its dividend 42 years in a row, together with a 15.6% improve in 2024.

Cintas raises its dividend annually, however its present yield is simply 0.8%, notably under that of the broader S&P 500 Index.

As well as, Cintas inventory has a particularly excessive valuation on account of a rising share worth. This text will evaluate Cintas in better element.

Enterprise Overview

Cintas Company began in 1929 beneath the title Acme Industrial Laundry Firm. It was based by Richard “Doc” Farmer, who began gathering chemical-soaked rags from factories and cleansing them for a payment.

After graduating from faculty, Doc Farmer’s grandson, Richard T. Farmer, joined the corporate in 1956. After gaining sufficient expertise, he left the household enterprise to start out Cintas in 1968.

As we speak, it’s the largest firm in its trade, producing annual income in extra of $10 billion.

Cintas designs and manufactures company uniforms, entrance mats, restroom provides, hearth safety, and first help merchandise. The corporate has a big and diversified buyer base, which incorporates greater than 1 million companies in North America, Latin America, Europe, and Asia.

Cintas is actually a development firm and has been for a very long time. Because of its aggressive benefits, it ought to proceed to develop within the years forward.

Supply: Investor Presentation

Progress Prospects

Cintas has loved robust development for the previous a number of years. It noticed significantly excessive development charges within the years following the Nice Recession, when hiring picked up and the labor market recovered. It once more rapidly recovered from the coronavirus pandemic final yr, although the unemployment charge spiked for an prolonged interval.

The corporate continues to carry out nicely. Cintas reported its fiscal 2025 second-quarter outcomes, displaying a income improve of seven.8% to $2.56 billion in comparison with $2.38 billion within the prior-year quarter. Natural income development, adjusted for acquisitions and foreign money fluctuations, was 7.1%. Gross margin rose 11.8% to $1.28 billion, with gross margin as a share of income bettering by 180 foundation factors to 49.8%. Decrease power bills contributed to the margin growth.

Working earnings elevated by 18.4% to $591.4 million, representing 23.1% of income, up from 21.0% within the earlier yr. Internet earnings grew 19.7% to $448.5 million, with an efficient tax charge of 20.7%. Diluted earnings per share (EPS) rose 21.1% to $1.09, reflecting the affect of a four-for-one inventory cut up. Cintas additionally elevated its quarterly dividend by 14.9% to $158.0 million. CEO Todd Schneider highlighted robust execution and the corporate’s worth proposition in driving these outcomes.

Cintas up to date its fiscal 2025 steerage, elevating its income projection to a spread of $10.255 billion to $10.320 billion and its diluted EPS estimate to $4.28–$4.34. The outlook assumes no future acquisitions, a secure overseas alternate charge, and no main financial disruptions. Because of greater variable-rate debt, curiosity bills are anticipated to rise to $101.0 million, whereas the efficient tax charge is projected at 20.2%. Regardless of two fewer workdays in fiscal 2025, Cintas expects continued robust monetary efficiency.

In whole, we see 9% common annual earnings-per-share development within the subsequent 5 years for Cintas.

Aggressive Benefits & Recession Efficiency

Cintas’s distinct working benefit is its huge distribution community, which incorporates greater than 11,000 native supply routes.

It’s the largest firm in its trade, which supplies it market management. It could be very troublesome for a brand new competitor to enter the market and attempt to disrupt Cintas’ enterprise mannequin, much more so after the G&Okay buy. This helps preserve competitors at bay as Cintas has a extremely entrenched buyer base. Its distribution capabilities and status for high quality present Cintas with excessive margins.

Whereas Cintas is a high-growth enterprise, it’s also reliant on a wholesome world financial system. When the financial system goes into recession, corporations rent much less and infrequently scale back headcount. This leads to diminished demand for the merchandise Cintas manufactures. Cintas had a troublesome time rising earnings-per-share through the Nice Recession, although the recession formally resulted in 2010.

The corporate’s earnings-per-share for 2008-2010 are proven under:

• 2007 earnings-per-share of $2.09
• 2008 earnings-per-share of $2.15 (2.9% improve)
• 2009 earnings-per-share of $1.83 (15% decline)
• 2010 earnings-per-share of $1.49 (19% decline)

As you may see, Cintas struggled throughout 2009 and 2010, with two consecutive years of double-digit earnings declines. This displays how intently the income of the enterprise are tied to the situation of the financial system.

On the similar time, Cintas remained worthwhile, which allowed it to proceed growing dividends annually. The dividend additionally seems to be fairly secure at present ranges.

Valuation & Anticipated Returns

Based mostly on anticipated earnings-per-share of $4.32 for fiscal 2025, Cintas inventory trades for a price-to-earnings ratio of about 47.7. This can be a very excessive valuation towards the broader market and Cintas’ personal historic valuations. Our honest worth estimate is a P/E ratio of 37 for Cintas inventory.

Subsequently, CTAS inventory seems to be considerably over-valued proper now.

If the inventory had been to return to our honest worth estimate price-to-earnings ratio over the following 5 years, shares would decline by about 5% yearly on account of a number of valuation contractions.

Because of this, Cintas is considerably overvalued. Earnings-per-share development (anticipated at 9% yearly) and the 0.8% dividend yield will offset the unfavorable returns from a falling valuation a number of. However total, whole returns are estimated at simply 4.8% per yr over the following 5 years.

Cintas’ valuation immediately is excessive, and we imagine buyers ought to keep away from the inventory because of this.

Closing Ideas

Cintas is a really robust firm with excessive earnings and dividend development charges. Nonetheless, Cintas seems to be buying and selling at a reasonably elevated valuation, with shares standing resilient towards the general market’s sell-off over the previous yr.

One other consequence of shares hitting new all-time highs constantly lately is that the inventory has a low dividend yield under the common of the S&P 500 Index.

Whereas the corporate has a safe dividend payout with room for future dividend will increase, the inventory is overvalued. We charge it a maintain regardless of its superior fundamentals solely due to the elevated valuation.

Moreover, the next Positive Dividend databases comprise essentially the most dependable dividend growers in our funding universe:

For those who’re on the lookout for shares with distinctive dividend traits, think about the next Positive Dividend databases:

The most important home inventory market indices are one other stable useful resource for locating funding concepts. Positive Dividend compiles the next inventory market databases and updates them month-to-month: