Dividend Aristocrats In Focus: Cintas Corporation – Sure Dividend

Up to date on February twentieth, 2025 by Felix Martinez

Most dividend development traders intention for rising dividend revenue over time. We imagine one of the simplest ways to attain that is to concentrate on high-quality dividend development shares.

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

You may see a full downloadable spreadsheet of all 69 Dividend Aristocrats, together with a number of essential monetary metrics equivalent to dividend yields and price-to-earnings ratios, by clicking on the hyperlink beneath:

Disclaimer: Certain Dividend shouldn’t be affiliated with S&P International in any means. S&P International owns and maintains The Dividend Aristocrats Index. The knowledge on this article and downloadable spreadsheet is predicated on Certain Dividend’s personal assessment, 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 International. Seek the advice of S&P International for official info.

We assessment all 69 Dividend Aristocrats annually, and the following inventory within the 2025 collection 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 beneath that of the broader S&P 500 Index.

As well as, Cintas inventory has a particularly excessive valuation resulting from a rising share value. This text will assessment Cintas in larger 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 price.

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

At present, it’s the largest firm in its business, producing annual income in extra of $10 billion.

Cintas designs and manufactures company uniforms, entrance mats, restroom provides, hearth safety, and first assist 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 development 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 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 shortly recovered from the coronavirus pandemic final yr, though the unemployment fee spiked for an prolonged interval.

The corporate continues to carry out effectively. Cintas reported its fiscal 2025 second-quarter outcomes, exhibiting 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 forex 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 vitality bills contributed to the margin enlargement.

Working revenue elevated by 18.4% to $591.4 million, representing 23.1% of income, up from 21.0% within the earlier yr. Web revenue grew 19.7% to $448.5 million, with an efficient tax fee of 20.7%. Diluted earnings per share (EPS) rose 21.1% to $1.09, reflecting the influence 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 robust execution and the corporate’s worth proposition in driving these outcomes.

Cintas up to date its fiscal 2025 steering, elevating its income projection to a variety 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 overseas trade fee, and no main financial disruptions. As a consequence of greater variable-rate debt, curiosity bills are anticipated to rise to $101.0 million, whereas the efficient tax fee is projected at 20.2%. Regardless of two fewer workdays in fiscal 2025, Cintas expects continued robust monetary efficiency.

In complete, 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 business, which provides 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&Okay buy. This helps maintain competitors at bay as Cintas has a extremely entrenched buyer base. Its distribution capabilities and fame 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, firms rent much less and sometimes scale back headcount. This ends in decreased demand for the merchandise Cintas manufactures. Cintas had a troublesome time rising earnings-per-share throughout the Nice Recession, although the recession formally led to 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% improve)
• 2009 earnings-per-share of $1.83 (15% decline)
• 2010 earnings-per-share of $1.49 (19% decline)

As you possibly can 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 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. This can be a very excessive valuation in opposition to the broader market and Cintas’ personal historic valuations. Our truthful worth estimate is a P/E ratio of 37 for Cintas inventory.

Due to this fact, CTAS inventory seems to be considerably over-valued proper now.

If the inventory have been to return to our truthful worth estimate price-to-earnings ratio over the following 5 years, shares would decline by about 5% yearly resulting from a number of valuation contractions.

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

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

Closing Ideas

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

One other consequence of shares hitting new all-time highs repeatedly in recent times 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 fee it a maintain regardless of its superior fundamentals solely due to the elevated valuation.

Moreover, the next Certain Dividend databases include probably the most dependable dividend growers in our funding universe:

For those who’re on the lookout for shares with distinctive dividend traits, contemplate the next Certain Dividend databases:

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