Cintas Corporation Quietly Delivers Massive Total Returns to Its Shareholders (NASDAQ:CTAS)

While not as exciting as some of the hot stocks that the financial news cover every day, the Cintas Corporation (NASTAQ:CTAS) continues providing its services to deliver substantial total returns to its long-term shareholders.

The Cintas Corporation might not make the list of hottest stocks to buy now. However, the stock’s steady asset appreciation and dividend income that has risen every year for several decades is exactly what many buy-and-hold investors seek. While the stock’s strong performance over the past several years is not guarantee of future performance, Cintas is a business leader in its sector with a solid plan for slow, but steady, growth in its current segment, as well as expansion into other business segments.

In 2018, 60% of Cintas Corporation’s new business was with companies that were not existing customers in the Cintas’ rental program. While Cintas currently holds a 30% share of the work uniform sales and rental market, the company has enough opportunity for expansion. Currently Cintas conducts business with only 1 million of the 16 million businesses operating in North America.

While work uniforms are generally associated with manufacturing and industrial businesses, Cintas is well positioned for the transition from a manufacturing to a service economy in North America and Europe. Last year, only 30% of Cintas’ customer base was in goods-producing sectors of the economy, such as manufacturing and construction. The remaining 70% of Cintas’ customer base is in the services sector, which includes hospitality, health care, foodservice, etc.

Before the 2008 financial crisis, Cintas grew its sales 48 out of the 50 years and increased its profit 39 consecutive years. Since the Great Recession, the company delivered annual organic growth between 5% and 7% and had double-digit-percentage earnings growth over the last nine years. This strong performance pushed the company’s share price to advance more than 13-fold since February 2009.

In addition to the steady asset appreciation, Cintas also rewarded its shareholders with a steadily rising dividend income. The current streak of 36 consecutive annual dividend hike and inclusion in the S&P 500 Index makes the Cintas Corporation one of just 57 Dividend Aristocrats. Dividend Aristocrats are S&P 500 companies that have hiked their annual dividend payout at least 25 consecutive years, as well as meet additional liquidity and trading frequency requirements.

Dividends

While most dividend-paying equities opt for a quarterly or a monthly distribution schedule, Cintas chose to distribute dividends only once per year. To change the dividend timing from its traditional payout in March to the current December distribution schedule, Cintas paid two dividends in 2010.

The Cintas Corporation began distributing dividends to its shareholders immediately after going public in late 1983. Additionally, the company has increased its annual dividend distribution amount every year since beginning dividend distributions 36 years ago. Just over the past two decades, the Cintas Corporation enhanced its annual dividend payout amount nearly 14-fold. That advancement pace is equivalent to an average annual growth rate of 14.1% per year.

However, Cintas boosted its dividend payout amount 26.5% for the payout last December, which is in line with the 25% and 22% annual dividend growth rates over the past three and five years, respectively. Based on dividend dates over the past several years, investors should expect this year’s dividend declaration announcement in the last week of October. In addition to the dividend amount, the declaration announcement also will specify the exact ex-dividend date, expected in the first week of November and the pay date, which is expected to follow a month later in the first week of December.

Using last year’s $2.05 dividend amount, the Cintas Corporation’s trailing dividend yield is 0.8%. A 25% dividend boost in line with the three-year average, would raise the payout amount to approximately $2.55 and a 1% forward dividend yield at the current share price, which will most likely continue to ascend.

Share Price

Pushed by the downward pressure from the overall market correction, Cintas’ share price fell nearly 13% in the fourth quarter of 2018, which was the stock’s largest pullback in the past five years. However, the share price recovered all those losses by the beginning of February 2019 and gained 73% above the 52-week low from late-December 2018 before reaching its most recent all-time high of $269.99 on October 21, 2019. During the next trading session, the share price pulled back 1.4% and closed at the end of trading on October 22, 2019, at $266.13. This closing price was nearly 71% above the 52-week low from late 2018, 49% higher than it was one year earlier and 275% higher than it was five years ago.

While currently yielding less than 1%, the dividend income pushed the total return over the trailing 12-month period above the 50% mark. The company’s shareholders more than doubled their investment with a total return of nearly 160% over the past three years. Additionally. Over the past five years, long-term investors saw their investment increase nearly four-fold.

Cintas Corporation (NASDAQ:CTAS)

Founded as the Acme Industrial Laundry Company in 1920 and headquartered in Cincinnati, the company provides corporate identity uniforms and related business services primarily in North America, Latin America, Europe and Asia. The company opened its first uniform rental plant in October 1968, changed the name to Cintas in 1972 and began trading shares publicly on the NASDAQ exchange in 1983. Currently, Cintas operates through two main business segments, Uniform Rental & Facility Services and First Aid & Safety Services.

The Uniform Rental & Facility Services segment rents, sells and services uniforms and other garments, mats, mops, shop towels and other ancillary items. Additionally, this segment provides restroom cleaning services and supplies, as well as carpet and tile cleaning services. Alternatively, the First Aid & Safety Services segment provides first aid and safety services, as well as flame resistant clothing, fire protection products and services.

Ned Piplovic is the assistant editor of website content at Eagle Financial Publications. He graduated from Columbia University with a Bachelor’s degree in Economics and Philosophy. Prior to joining Eagle, Ned spent 15 years in corporate operations and financial management. Ned writes for www.DividendInvestor.com and www.StockInvestor.com.