Updated on February 20th, 2025 by Felix Martinez
Most dividend growth investors aim for rising dividend income over time. We believe the best way to achieve 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 69 companies in the S&P 500 Index with 25+ consecutive years of dividend increases.
You can see a full downloadable spreadsheet of all 69 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 69 Dividend Aristocrats each year, and the next stock in the 2025 series is Cintas Corporation (CTAS). Cintas is a high-growth dividend stock. It has raised its dividend 42 years in a row, including a 15.6% increase in 2024.
Cintas raises its dividend each year, but its current yield is just 0.8%, notably below that 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.
After graduating from college, Doc Farmer’s grandson, Richard T. Farmer, joined the company in 1956. 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 $10 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.
Source: Investor Presentation
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 reported its fiscal 2025 second-quarter results, showing a revenue increase of 7.8% to $2.56 billion compared to $2.38 billion in the prior-year quarter. Organic revenue growth, adjusted for acquisitions and currency fluctuations, was 7.1%. Gross margin rose 11.8% to $1.28 billion, with gross margin as a percentage of revenue improving by 180 basis points to 49.8%. Lower energy expenses contributed to the margin expansion.
Operating income increased by 18.4% to $591.4 million, representing 23.1% of revenue, up from 21.0% in the previous year. Net income grew 19.7% to $448.5 million, with an effective tax rate of 20.7%. Diluted earnings per share (EPS) rose 21.1% to $1.09, reflecting the impact of a four-for-one stock split. Cintas also increased its quarterly dividend by 14.9% to $158.0 million. CEO Todd Schneider highlighted strong execution and the company’s value proposition in driving these results.
Cintas updated its fiscal 2025 guidance, raising its revenue projection to a range 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 stable foreign exchange rate, and no major economic disruptions. Due to higher variable-rate debt, interest expenses are expected to rise to $101.0 million, while the effective tax rate is projected at 20.2%. Despite two fewer workdays in fiscal 2025, Cintas expects continued strong financial performance.
In total, we see 9% average annual earnings-per-share growth in the next five years for Cintas.
Competitive Advantages & Recession Performance
Cintas’s distinct operating advantage is its vast distribution network, which includes 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:
- 2007 earnings-per-share of $2.09
- 2008 earnings-per-share of $2.15 (2.9% increase)
- 2009 earnings-per-share of $1.83 (15% decline)
- 2010 earnings-per-share of $1.49 (19% decline)
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 $4.32 for fiscal 2025, Cintas stock trades for a price-to-earnings ratio of about 47.7. 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 37 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 5% annually due to multiple valuation contractions.
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 4.8% 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 high earnings and dividend growth rates. 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 of the elevated valuation.
Additionally, the following Sure Dividend databases contain the most reliable dividend growers in our investment universe:
- The Dividend Contenders List: 10-24 consecutive years of dividend increases.
- The Dividend Challengers List: 5-9 consecutive years of dividend increases.
- The Dividend Champions: Dividend stocks with 25+ years of dividend increases, including those that may not qualify as Dividend Aristocrats.
- The Dividend Achievers: dividend stocks with 10+ years of consecutive dividend increases.
- The Dividend Kings: considered to be the ultimate dividend growth stocks, the Dividend Kings list is comprised of stocks with 50+ years of consecutive dividend increases
If you’re looking for stocks with unique dividend characteristics, consider the following Sure Dividend databases:
- The Complete List of Monthly Dividend Stocks: stocks that pay dividends each month, for 12 payments over the year.
- The Blue Chip Stocks List: this database contains stocks that qualify as either Dividend Achievers, Dividend Aristocrats, or Dividend Kings.
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: