Cintas (NASDAQ:CTAS) is a dividend aristocrat, which means it has continuously increased its dividend payout every year for the past 25 years or more. Investing in reliable dividend stocks such as those on the aristocrat list is a rewarding way to unlock exceptional returns for years on end. For Cintas shareholders, this translates into a steady stream of reoccurring income. It is in this spirit that we will look at the underlying fundamentals of Cintas' business to uncover whether it is a rewarding stock to buy today.
Show me the money
Cintas is a leader in the commercial services and supplies industry, providing products and services to more than one million businesses today. This is important because it means no single customer accounts for more than 1% of the company's annual revenue. Cintas is now the largest supplier of corporate uniforms in North America, providing clothes for more than 5 million people each workday. In fiscal 2014, sales from rental uniforms and ancillary products accounted for more than 70% of Cintas' total revenue, followed by 11% from first aid and fire protection services, 10% from direct sales of uniforms, and 7.9% from document management services.
Thanks to its market-leading position and strong revenue channels, Cintas has been able to reward shareholders with dividends every year since it first hit the public market in 1983. Moreover, the company has increased its payout every year for the past 31 years running.
In December, the company increased its dividend by more than 20% and now pays an annual cash dividend of $0.77 per share, with a dividend yield of 1.09%. Cintas spent $93.3 billion on dividends last year, though that seems reasonable when compared to the $4.6 billion the company generated in revenue over that period.
Additionally, with a payout ratio of just 14%, Cintas should have no problem continuing to reward its shareholders with cash dividends for many years to come. The payout ratio is important because it tells investors how much of the company's net income is being given back to shareholders. In Cintas' case, at a modest 14% of the company's net income, management still has ample cash on hand to invest in growing the business.
The stock's dividend yield of 1.09%, on the other hand, leaves a lot to be desired. This is significantly below both the industry average and the S&P 500's dividend yield today. True, chasing high yields can be dangerous. However, there are plenty of reliable dividend aristocrat stocks currently available to investors with much richer payouts. Therefore, despite Cintas getting top marks for reliability, it isn't the best place for investors to put new money today.