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Dividend Aristocrats In Focus: Cintas Corporation

Updated on April 18th, 2024 by Bob Ciura

Rising dividend income over time is the main goal for most dividend growth investors. We believe the best way to do this is to focus on high-quality dividend growth stocks.

For the best-in-class dividend growth stocks, consider investing in the Dividend Aristocrats, a select group of 68 companies in the S&P 500 Index with 25+ consecutive years of dividend increases.

You can see a full downloadable spreadsheet of all 68 Dividend Aristocrats, along with several important financial metrics such as dividend yields and price-to-earnings ratios, by clicking on the link below:


Disclaimer: Sure Dividend is not affiliated with S&P Global in any way. S&P Global owns and maintains The Dividend Aristocrats Index. The information in this article and downloadable spreadsheet is based on Sure Dividend’s own review, summary, and analysis of the S&P 500 Dividend Aristocrats ETF (NOBL) and other sources, and is meant to help individual investors better understand this ETF and the index upon which it is based. None of the information in this article or spreadsheet is official data from S&P Global. Consult S&P Global for official information.

We review all 68 Dividend Aristocrats each year, and the next stock in the 2024 series is Cintas Corporation (CTAS). Cintas is a high-growth dividend stock. It has raised its dividend 41 years in a row, including a 17% increase in 2023.

Cintas raises its dividend each year, but it has a low current yield of just 0.8%. This is notably below the dividend yield of the broader S&P 500 Index.

In addition, Cintas stock has an extremely high valuation due to a rising share price. This article will review Cintas in greater detail.

Business Overview

Cintas Corporation started in 1929 under the name Acme Industrial Laundry Company. It was founded by Richard “Doc” Farmer, who started collecting chemical-soaked rags from factories and cleaning them for a fee.

Doc Farmer’s grandson, Richard T. Farmer, joined the company in 1956 after graduating from college. After gaining enough experience, he left the family business to start Cintas in 1968.

Today, it is the largest company in its industry, generating annual revenue in excess of $9 billion.

Cintas designs and manufactures corporate uniforms, entrance mats, restroom supplies, fire protection, and first aid products. The company has a large and diversified customer base, which includes more than 1 million businesses in North America, Latin America, Europe, and Asia.

Cintas is certainly a growth company and has been for a long time. Due to its competitive advantages, it should continue to grow in the years ahead.

Growth Prospects

Cintas has enjoyed strong growth for the past several years. It saw particularly high growth rates in the years following the Great Recession, when hiring picked up and the labor market recovered. It again quickly recovered from the coronavirus pandemic last year, even though the unemployment rate spiked for an extended period.

The company continues to perform well. Cintas posted fiscal third-quarter earnings on March 27th, 2024, and results were much better than expected. Earnings came to $3.84 per share, which was an impressive 26 cents ahead of estimates. Revenue was up 10% year-over-year to $2.41 billion, beating estimates by $20 million. Organic revenue rose 7.7% for the quarter.

Gross margin was $1.19 billion, up from $1.03 billion, or an increase of 14.9%. Gross margin as a percentage of revenue was 49.4%, up from 47.2%. Operating income was up 16.6% year-over-year to $521 million on a combination of both gross margin expansion and revenue growth. Net income was $398 million, up from $326 million year-over-year.

Cintas has a positive growth outlook moving forward. Catalysts for future growth include the strong U.S. labor market and Cintas’s willingness and ability to acquire growth, as it did with Gorman Uniform in 2022.

Cintas benefits from global economic growth. As companies grow and hire new employees, service uniforms and related equipment demand rises. This is how Cintas has produced such high growth rates over time.

Another growth catalyst for Cintas is its portfolio restructuring. The company has divested under-performing segments and has acquired companies in new areas, as management is willing to reshape its portfolio toward the best future opportunities.

In total, we see 9% average annual earnings-per-share growth in the next five years for Cintas.

Competitive Advantages & Recession Performance

Cintas has a distinct operating advantage, which is its vast distribution network. For example, Cintas has more than 11,000 local delivery routes.

It is the largest company in its industry, which gives it market control. It would be very difficult for a new competitor to enter the market and try to disrupt Cintas’ business model, even more so after the G&K purchase. This helps keep competition at bay as Cintas has a highly entrenched customer base. Its distribution capabilities and reputation for quality provide Cintas with high margins.

While Cintas is a high-growth business, it is also reliant on a healthy global economy. When the economy goes into recession, companies hire less and often reduce headcount. This results in reduced demand for the products Cintas manufactures. Cintas had a difficult time growing earnings-per-share during the Great Recession, despite the fact that the recession officially ended in 2010.

The company’s earnings-per-share for 2008-2010 are shown below:

As you can see, Cintas struggled during 2009 and 2010, with two consecutive years of double-digit earnings declines. This reflects how closely the profits of the business are tied to the condition of the economy.

At the same time, Cintas remained profitable, which allowed it to continue increasing dividends each year. The dividend also appears to be quite safe at current levels.

Valuation & Expected Returns

Based on expected earnings-per-share of $15.00 for fiscal 2024, Cintas stock trades for a price-to-earnings ratio of about 44.6. This is a very high valuation against the broader market and Cintas’ own historical valuations. Our fair value estimate is a P/E ratio of 32 for Cintas stock.

Therefore, CTAS stock appears to be significantly over-valued right now.

If the stock were to return to our fair value estimate price-to-earnings ratio over the next five years, shares would decline by about 6.4% annually from valuation multiple contraction.

As a result, Cintas is significantly overvalued. Earnings-per-share growth (expected at 9% annually) and the 0.8% dividend yield will offset the negative returns from a falling valuation multiple. But overall, total returns are estimated at just 3.4% per year over the next five years.

Cintas’ valuation today is high, and we believe investors should avoid the stock as a result.

Final Thoughts

Cintas is a very strong company with a high earnings and dividend growth rate. However, Cintas appears to be trading at a rather elevated valuation, with shares standing resilient against the overall market’s sell-off over the past year.

Another consequence of shares hitting new all-time highs continuously in recent years is that the stock has a low dividend yield below the average of the S&P 500 Index.

While the company has a secure dividend payout with room for future dividend increases, the stock is overvalued. We rate it a hold, despite its superior fundamentals, solely because the valuation is so elevated.

Additionally, the following Sure Dividend databases contain the most reliable dividend growers in our investment universe:

If you’re looking for stocks with unique dividend characteristics, consider the following Sure Dividend databases:

The major domestic stock market indices are another solid resource for finding investment ideas. Sure Dividend compiles the following stock market databases and updates them monthly:

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