Cintas Corp. has increased its dividend for the 32nd year in a row. This year’s double-digit rise was supported by strong cash reserves. A 68% rise in earnings over the last five years also contributed to the move.
CINTAS CORP. (Nasdaq symbol CTAS; www.cintas.com) started out by offering laundry services to businesses in 1929. The company is now North America’s largest provider of corporate uniforms, with over 1 million customers.
In addition to renting and cleaning uniforms, Cintas also rents out a variety of related products, such as mats, towels, mops and cleaning supplies. In all, these services account for 77% of its revenue. It gets a further 10% selling uniforms. The remaining 13% of its revenue come from selling first aid kits, fire extinguishers, sprinklers and emergency-exit lights.
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In 2014, the company sold its document-shredding operations to Toronto-based Shred-it International. In exchange, it received 42% of the combined firm and $180 million in cash. In May 2015, the company received a $113.4 million dividend from Shred-it.
Shred-it later accepted a $2.3-billion takeover offer from Stericycle (Nasdaq symbol SRCL). As a result, Cintas received $578 million for its stake. It could get an extra $34 million depending on Shred-it’s future performance.
Cintas’s revenue rose 19.5%, from $3.8 billion in 2011 to $4.6 billion in 2014 (fiscal years end May 31). Due to the sale of Shred-it, revenue in 2015 fell 1.6% to $4.5 billion.
Excluding the gain on Shred-it and other unusual items, earnings jumped 68.8%, from $247.0 million in 2011 to $416.9 million in 2015. Earnings per share rose at a faster pace of 104.8%, from $1.68 to $3.44, on fewer shares outstanding.
Cintas is using the cash from the Shred-it sale to buy back more shares. Since June 2015, it spent $382.9 million on share buybacks. The company recently authorized a new $500-million share repurchase authorization. There are no expiry dates for these purchases.
The company also raised its once-a-year dividend by 23.5%, to $1.05 a share from $0.85. The new rate yields 1.1%. Cintas has increased the dividend each year for the past 32 years.
Cintas also continues to make small acquisitions. For example, it recently paid $134.0 million for ZEE Medical, which sells first aid kits to businesses. This new business should add $120 million to Cintas’s annual revenue.
Cintas is in a strong position to keep expanding: its long-term debt of $1.05 billion (as of February 29, 2016) is a low 11% of its market cap, and it holds cash and investments of $505.4 million.
The stock has gained 10% in the past year, and now trades at 23.4 times the $3.85 a share it will likely earn in fiscal 2016. That’s a somewhat high multiple, but still reasonable for a company that dominates its niche industry. Moreover, its acquisitions give it an opportunity to cross-sell more services to new clients.
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