Dividend Aristocrats In Focus: Cintas Company

Up to date on February twentieth, 2025 by Felix Martinez

Most dividend progress traders purpose for rising dividend earnings over time. We imagine the easiest way to realize that is to give attention to high-quality dividend progress shares.

For the best-in-class dividend progress shares, contemplate 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 possibly can see a full downloadable spreadsheet of all 69 Dividend Aristocrats, together with a number of vital monetary metrics reminiscent of dividend yields and price-to-earnings ratios, by clicking on the hyperlink beneath:

Disclaimer: Positive Dividend just isn’t affiliated with S&P World in any method. S&P World 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 traders 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 World. Seek the advice of S&P World for official info.

We evaluate all 69 Dividend Aristocrats annually, and the subsequent 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% enhance in 2024.

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

As well as, Cintas inventory has an especially excessive valuation as a consequence of a rising share value. This text will evaluate Cintas in better element.

Enterprise Overview

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

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.

At the moment, 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, fireplace safety, and first support 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 definitely a progress firm and has been for a very long time. As a consequence of its aggressive benefits, it ought to proceed to develop within the years forward.

Supply: Investor Presentation

Progress Prospects

Cintas has loved sturdy progress for the previous a number of years. It noticed notably excessive progress 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 12 months, regardless that 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 enhance of seven.8% to $2.56 billion in comparison with $2.38 billion within the prior-year quarter. Natural income progress, 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 enhancing by 180 foundation factors to 49.8%. Decrease power bills contributed to the margin enlargement.

Working earnings elevated by 18.4% to $591.4 million, representing 23.1% of income, up from 21.0% within the earlier 12 months. Web 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 impression of a four-for-one inventory break up. Cintas additionally elevated its quarterly dividend by 14.9% to $158.0 million. CEO Todd Schneider highlighted sturdy 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 steady international alternate charge, and no main financial disruptions. As a consequence of increased 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 sturdy monetary efficiency.

In complete, we see 9% common annual earnings-per-share progress 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 will 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&Ok buy. This helps maintain competitors at bay as Cintas has a extremely entrenched buyer base. Its distribution capabilities and popularity for high quality present Cintas with excessive margins.

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

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

• 2007 earnings-per-share of $2.09
• 2008 earnings-per-share of $2.15 (2.9% enhance)
• 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 carefully the earnings of the enterprise are tied to the situation of the economic system.

On the similar time, Cintas remained worthwhile, which allowed it to proceed rising 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. It is a very excessive valuation in opposition to 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 subsequent 5 years, shares would decline by about 5% yearly as a consequence of a number of valuation contractions.

Because of this, Cintas is considerably overvalued. Earnings-per-share progress (anticipated at 9% yearly) and the 0.8% dividend yield will offset the unfavourable returns from a falling valuation a number of. However general, complete returns are estimated at simply 4.8% per 12 months over the subsequent 5 years.

Cintas’ valuation at this time is excessive, and we imagine traders ought to keep away from the inventory in consequence.

Remaining Ideas

Cintas is a really sturdy firm with excessive earnings and dividend progress charges. Nonetheless, Cintas seems to be buying and selling at a fairly elevated valuation, with shares standing resilient in opposition to the general market’s sell-off over the previous 12 months.

One other consequence of shares hitting new all-time highs repeatedly lately is that the inventory has a low dividend yield beneath the typical 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:

In the event you’re on the lookout for shares with distinctive dividend traits, contemplate the next Positive Dividend databases:

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