Up to date on April 18th, 2024 by Bob Ciura
Rising dividend revenue over time is the primary purpose for many dividend development traders. We imagine the easiest way to do 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 68 corporations within the S&P 500 Index with 25+ consecutive years of dividend will increase.
You may see a full downloadable spreadsheet of all 68 Dividend Aristocrats, together with a number of necessary monetary metrics similar to dividend yields and price-to-earnings ratios, by clicking on the hyperlink under:
Disclaimer: Positive Dividend will not be affiliated with S&P World in any means. S&P World owns and maintains The Dividend Aristocrats Index. The knowledge on this article and downloadable spreadsheet is predicated on Positive 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 based mostly. Not one of the data on this article or spreadsheet is official information from S&P World. Seek the advice of S&P World for official data.
We assessment all 68 Dividend Aristocrats every year, and the subsequent inventory within the 2024 sequence is Cintas Company (CTAS). Cintas is a high-growth dividend inventory. It has raised its dividend 41 years in a row, together with a 17% enhance in 2023.
Cintas raises its dividend every year, but it surely has a low present yield of simply 0.8%. That is notably under the dividend yield of the broader S&P 500 Index.
As well as, Cintas inventory has an especially excessive valuation as a result of a rising share value. This text will assessment Cintas in higher element.
Enterprise Overview
Cintas Company began in 1929 below 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.
Doc Farmer’s grandson, Richard T. Farmer, joined the corporate in 1956 after graduating from faculty. After gaining sufficient expertise, he left the household enterprise to begin Cintas in 1968.
Immediately, it’s the largest firm in its business, producing annual income in extra of $9 billion.
Cintas designs and manufactures company uniforms, entrance mats, restroom provides, hearth 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 development firm and has been for a very long time. On account of its aggressive benefits, it ought to proceed to develop within the years forward.
Development Prospects
Cintas has loved sturdy development for the previous a number of years. It noticed notably 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 12 months, regardless that the unemployment price spiked for an prolonged interval.
The corporate continues to carry out nicely. Cintas posted fiscal third-quarter earnings on March twenty seventh, 2024, and outcomes have been significantly better than anticipated. Earnings got here to $3.84 per share, which was a formidable 26 cents forward of estimates. Income was up 10% year-over-year to $2.41 billion, beating estimates by $20 million. Natural income rose 7.7% for the quarter.
Gross margin was $1.19 billion, up from $1.03 billion, or a rise of 14.9%. Gross margin as a share of income was 49.4%, up from 47.2%. Working revenue was up 16.6% year-over-year to $521 million on a mixture of each gross margin enlargement and income development. Web revenue was $398 million, up from $326 million year-over-year.
Cintas has a constructive development outlook transferring ahead. Catalysts for future development embody the sturdy U.S. labor market and Cintas’s willingness and talent to amass development, because it did with Gorman Uniform in 2022.
Cintas advantages from international financial development. As corporations develop and rent new staff, service uniforms and associated gear demand rises. That is how Cintas has produced such excessive development charges over time.
One other development catalyst for Cintas is its portfolio restructuring. The corporate has divested under-performing segments and has acquired corporations in new areas, as administration is prepared to reshape its portfolio towards the perfect future alternatives.
In whole, we see 9% common annual earnings-per-share development within the subsequent 5 years for Cintas.
Aggressive Benefits & Recession Efficiency
Cintas has a definite working benefit, which is its huge distribution community. For instance, Cintas has greater than 11,000 native supply routes.
It’s the largest firm in its business, which provides it market management. It might 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 fame for high quality present Cintas with excessive margins.
Whereas Cintas is a high-growth enterprise, it’s also reliant on a wholesome international economic system. When the economic system goes into recession, corporations rent much less and infrequently cut back headcount. This ends in lowered demand for the merchandise Cintas manufactures. Cintas had a troublesome time rising earnings-per-share throughout the Nice Recession, even if 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% enhance)
- 2009 earnings-per-share of $1.83 (15% decline)
- 2010 earnings-per-share of $1.49 (19% decline)
As you’ll be able to see, Cintas struggled throughout 2009 and 2010, with two consecutive years of double-digit earnings declines. This displays how carefully the income of the enterprise are tied to the situation of the economic system.
On the identical time, Cintas remained worthwhile, which allowed it to proceed rising dividends every year. The dividend additionally seems to be fairly protected at present ranges.
Valuation & Anticipated Returns
Based mostly on anticipated earnings-per-share of $15.00 for fiscal 2024, Cintas inventory trades for a price-to-earnings ratio of about 44.6. This can be 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 32 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 honest worth estimate price-to-earnings ratio over the subsequent 5 years, shares would decline by about 6.4% yearly from valuation a number of contraction.
Consequently, Cintas is considerably overvalued. Earnings-per-share development (anticipated at 9% yearly) and the 0.8% dividend yield will offset the detrimental returns from a falling valuation a number of. However total, whole returns are estimated at simply 3.4% per 12 months over the subsequent 5 years.
Cintas’ valuation immediately is excessive, and we imagine traders ought to keep away from the inventory in consequence.
Ultimate Ideas
Cintas is a really sturdy firm with a excessive earnings and dividend development price. Nonetheless, Cintas seems to be buying and selling at a relatively 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 constantly in recent times is that the inventory has a low dividend yield under 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 price it a maintain, regardless of its superior fundamentals, solely as a result of the valuation is so elevated.
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, think about the next Positive Dividend databases:
The key 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:
Thanks for studying this text. Please ship any suggestions, corrections, or inquiries to help@suredividend.com.