Last update on 2024-06-27

Cintas (CTAS) - Dividend Analysis (Final Score: 6/8)

Comprehensive dividend analysis for Cintas (CTAS), scoring 6/8 based on an 8-criteria system. Performance, stability, growth, and payout ratios assessed.

Short Analysis - Dividend Score: 6

We're running Cintas (CTAS) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

Cintas Corporation (CTAS) has been assessed against an 8-criteria scoring system to evaluate its dividend policy. The company has a mixed record in terms of dividend yield, which is lower than the industry average at 0.8297% despite consistent dividend increases. However, its average annual dividend growth rate of 20.31% over the last 20 years is quite impressive, although there have been some volatile years. The payout ratio, averaging 30.93%, is well below the 65% threshold, indicating a sustainable dividend policy. Additionally, both earnings and cash flows cover dividends adequately, showcasing good financial health. Cintas has paid dividends consistently for 25 years and has demonstrated stable and growing dividends over the past two decades. The company has also reliably repurchased shares over the past 20 years, signifying prudent capital management. Overall, Cintas shows a robust commitment to returning value to shareholders through dividends and stock buybacks.

Insights for Value Investors Seeking Stable Income

Cintas Corporation exhibits a strong and reliable dividend policy characterized by sustainability, stability, and long-term growth. Though the dividend yield is lower than the industry average, the high rate of dividend growth and consistent payouts over the past 25 years highlight its commitment to shareholders. This makes Cintas a potentially good investment for growth-oriented and long-term income investors. Investors seeking high immediate yields might look elsewhere, but for those interested in strong financial health and historical consistency, Cintas is worth considering.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Dividend Yield Higher than the Industry Average?

A dividend yield is an important metric for investors looking to generate income from dividends as it represents the annual dividend as a percentage of the stock price. A higher dividend yield often suggests a company that is returning a larger proportion of its profits to shareholders in the form of dividends.

Comparing Cintas's dividend yield over the last 20 years to the industry average reveals some interesting trends. Cintas's current dividend yield sits at 0.8297%, which is noticeably lower compared to the industry average of 1.67%. Historically, Cintas's dividend yield has fluctuated, reaching a peak of 3.4692% in 2010 and maintaining higher values particularly during market downturns which aligns with the 2008 financial crisis where the yield was 1.9802%. However, from 2015 onwards, the yield has generally been on a declining trend despite the company consistently raising its dividend per share from $0.27 in 2003 to $5 in 2023. This decline is likely due to the significant appreciation in Cintas's stock price, which has increased from $50.1 in 2003 to $602.66 in 2023. For income-focused investors, a lower dividend yield relatively to the industry may not be as attractive. However, for growth-oriented investors, this may suggest robust capital appreciation and reinvestment strategies.

Average annual Growth Rate higher than 5% in the last 20 years?

Criterion 1.1 evaluates whether the Dividend Growth Rate of a company has been consistently higher than 5% over the last 20 years. The consistency in dividend growth is crucial for investors seeking reliable income generation and potential capital appreciation. A consistent growth rate above 5% often signals a company's strong financial health, operational efficiency, and confidence in future cash flows.

Based on the provided dividend growth rates for Cintas (CTAS) from 2003 to 2023, the values vary significantly year over year. Certain years exhibit extraordinarily high growth rates, such as 2009's 106.383% and 2014's 120.7792%, whereas some years have negative growth rates. This fluctuation indicates some volatility in the company's dividend policy. However, with an average dividend growth rate of 20.31%, which is significantly above the 5% threshold, it suggests that the company generally maintains robust dividend increases over the long term. This trend is predominantly advantageous for income-focused investors as it reflects strong commitment to returning capital to shareholders. However, the negative years should also prompt cautious optimism, as it points to potential inconsistency. Overall, the trend can be considered good, but with a note of caution regarding volatility.

Average annual Payout Ratio lower than 65% in the last 20 years?

Examining the average payout ratio over a long-term period, such as 20 years, offers investors insights into a company's dividend sustainability. A payout ratio lower than 65% often indicates a healthy balance where the company pays a reasonable portion of its earnings as dividends while retaining enough for growth and unexpected expenses. This threshold suggests that the company is not overextending its finances to pay dividends.

Cintas Corporation (CTAS) has maintained a notably low average payout ratio of approximately 30.93% over the last 20 years. This value is well below the 65% threshold, indicating a highly sustainable dividend policy. The consistency of the low payout ratios, barring a couple of spikes in specific years like 2009 (68.77%), showcases Cintas's commitment to a balanced approach between rewarding shareholders and retaining earnings for operational needs and growth. The overall trend is positive, reflecting the company's financial prudence and its potential to continue providing dividends without risking fiscal instability.

Dividends Well Covered by Earnings?

This criterion examines whether the company's earnings are sufficient to cover its dividend payments. It is important because it indicates financial stability and the ability to sustain dividend payments.

Looking at the data from 2003 to 2023, Cintas' dividend payout ratio (dividends per share covered by earnings per share) has shown fluctuations, ranging from as low as 0.18 to as high as 0.68. Generally, a payout ratio below 0.60 is considered healthy as it suggests that the dividends are well-covered by earnings, allowing room for growth and unexpected downturns. In 2023, the payout ratio is 0.38 which is within the safe zone, indicating that Cintas is in a good position to maintain its dividend policy. This positive trend suggests that Cintas has a stable revenue generation mechanism and prudent dividend distribution strategy, enhancing shareholder value.

Dividends Well Covered by Cash Flow?

The dividend coverage ratio by cash flow indicates how well a company can pay its dividend out of its cash flow. A higher ratio suggests better coverage and financial stability.

Cintas (CTAS) has demonstrated a generally strong ability to cover its dividend payments with its free cash flow (FCF) over the past two decades. In particular, in recent years (2019-2023), CTAS has shown robust free cash flow numbers, reaching a notable $1.267 billion in 2023. Meanwhile, its dividend payout has also increased, but the ratio of dividend coverage has largely remained healthy, staying above 0.25 (except in some earlier years). The highest coverage ratio was observed in 2015 at approximately 0.56 and markedly high coverage in 2014 and 2013 as well. Such consistency affirms the company's financial resilience and prudent dividend payout strategy, signaling a good trend. This positive financial capability is crucial, especially in harsh economic conditions, as it assures investors of sustained dividend payments.

Stable Dividends Since the Company Began Paying Dividends?

Stability in dividend payments, where the dividend per share did not drop by more than 20% over the past two decades, is of utmost importance for income-seeking investors.

Based on the provided data, Cintas (CTAS) has displayed impressive stability in its dividend payments over the past 20 years. The dividend per share has consistently increased each year without any instance of a decline by more than 20%. This trend reflects a strong financial health and a robust business model that can weather economic downturns—crucial factors for income-seeking investors. This stable and growing dividend is a positive indicator, showcasing that the company is committed to returning capital to its shareholders even during challenging times. For example, in 2009, during the financial crisis, the dividend payment rose to $0.47 from $0.46 in 2008, reinforcing the resilience and reliability of Cintas' dividend policy.

Dividends Paid for Over 25 Years?

Dividends paid over an extended period, such as 25 years, indicate a company's commitment to returning capital to shareholders and suggests operational stability and financial health. It demonstrates that the company can generate sufficient earnings to support consistent payouts year after year.

Cintas (CTAS) has consistently paid dividends every year from 1998 to 2023, marking a 25-year period of uninterrupted dividend payments. Over these 25 years, the dividends per share have increased from $0.12 in 1998 to $5 in 2023, which signifies a steady and notable growth. The trend in dividends suggests a robust capability to generate and distribute profits. This incremental increase reflects positively on Cintas' financial discipline and long-term shareholder value, making it a good sign for dividend investors. Therefore, this trend is very favorable for dividend viability.

Reliable Stock Repurchases Over the Past 20 Years?

Reliability in stock repurchases indicates that a company is both willing and able to return value to its shareholders consistently over time. Consistent stock repurchases suggest prudent capital management and can be a sign of a firm's long-term financial health and the management's belief in the company's future growth prospects.

Over the past 20 years, Cintas Corporation (CTAS) has demonstrated a reliable pattern of stock repurchases. Every year from 2006 to 2023, except for 2018 and 2021, the company has been actively reducing the number of shares outstanding, signaling a consistent approach to buying back its stock. For instance, Cintas repurchased shares aggressively from 2006 to 2017, reducing the outstanding shares from 168.6 million in 2006 to around 107.8 million by 2017. The average annual reduction rate over the past 20 years stands at -2.5505%, further proving the company's commitment to returning value to shareholders. The continuation of share buybacks in recent years (2019, 2020, 2022, and 2023) even amid economic uncertainties further strengthens the trend. This trend is positive as it reflects CTAS's confidence in its operations and future profitability, contributing to enhanced shareholder value.