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1 Dividend Aristocrat Stock to Keep an Eye on This Winter

Clear indication by the Fed on the continuation of interest rate hikes in the foreseeable future has nipped the recent market optimism in the bud. With growth forecasts in jeopardy, it may be opportune to prioritize income generation with Cintas (CTAS), as it pays reliable dividends. Read on…

Federal Reserve chair Jerome Powell’s announcement, indicating that yesterday’s 50-bps interest rate hike may be the first of several more required to ensure that the inflation rate may be limited to 2%, knocked the wind out of the market, which was recently buoyed with expectations of a stance reversal by the central bank in the foreseeable future.

In lockstep, the Bank of England and European Central Bank followed suit by raising their respective interest rates by half a percentage point earlier today. With businesses in developed economies set to be weighed down further by higher borrowing costs, most growth estimates seem to have gone out of the window.

Since markets are unlikely to stabilize anytime soon, it may be wise to prioritize income generation over capital appreciation until the pendulum starts swinging in the other direction.

To that end, business service outsourcing firm Cintas Corporation (CTAS) might be worthy of consideration. This dividend aristocrat operates in the United States, as well as Canada and Latin America, through two segments: Uniform Rental and Facility Services and First Aid and Safety Services.

Let’s closely examine the factors that make it eligible for your watchlist.

Robust Financials

For the fiscal first quarter, ended August 31, 2022, CTAS’ total revenue increased 14.2% year-over-year to $2.17 billion. During the same period, the company’s operating income grew 11.7% from its year-ago value to $440.12 million, while its net income came in at $351.69 million or $3.39 per share, up 6.2% and 9%, respectively.

Positive Analyst Estimates

Analysts expect CTAS’s revenue and EPS for the fiscal to increase 10% and 11.4% year-over-year to $8.64 billion and $12.56, respectively. Both metrics are expected to keep growing over the next two fiscals to come in at $9.43 billion and $14.52, respectively.

In addition to the above, CTAS has an impressive earnings surprise history of surpassing consensus EPS estimates in each of the trailing four quarters.

Upward Price Momentum

CTAS’s stock is trading above its 50-day and 200-day moving averages of $429.50 and $406.22, respectively. It has gained 3.2% over the past month and 8.3% year-to-date to close the last trading session at $459.28.

Impressive Dividend Payout History

Today CTAS paid its quarterly cash dividend of $1.15 per share to shareholders of record at the close of business on November 15, 2022. The company pays $4.60 annually as dividends. This translates to a yield of 1% at the current price, compared to the 4-year average dividend yield of 1.02%.

CTAS currently returns 34.33% of its earnings to its shareholders as dividends. The company’s payouts have grown at 21% CAGR over the past five years.

CTAS has a strong record of returning capital to its shareholders and has consistently raised its dividend each year since its initial public offering 39 years ago in 1983.

Higher-than-industry Profitability

CTAS’ trailing 12-month gross profit margin of 46.25% is 59% higher than the industry average of 29.09%. The company’s trailing 12-month EBITDA and net income margins of 23.69 % and 15.46 % are 81.7% and 129.1% higher than its industry averages of 13.03 % and 6.75 %, respectively.

In terms of the trailing 12-month ROCE, ROTC, and ROTA, CTAS also surpasses the industry averages of 14.19 %, 6.76 %, and 5.31 % by 169.6%, 140.1%, and 186.2 %, respectively.

POWR Ratings Reflect Stable Prospects

CTAS has an overall rating of B, equating to a Buy in our POWR Ratings system. The POWR Ratings assess stocks by 118 different factors, each with its weighting.

Our proprietary rating system also evaluates each stock based on eight distinct categories. CTAS has an A grade for Quality, consistent with its high profitability.

The stock has grade B for Stability and Sentiment, in sync with positive analyst estimates and bullishness in price action.

CTAS is ranked #10 of 42 stocks in the B-rated Outsourcing - Business Services industry. Click here to access additional POWR Ratings for CTAS’ Growth, Momentum, and Value.

Bottom Line

Given its high profitability, healthy growth prospects, and attractive income generation potential, CTAS appears to be a smart buy to tide over the near-term economic turbulence.

How Does Cintas Corporation (CTAS) Stack up Against Its Peers?

CTAS has an overall POWR Rating of B, equating to a Buy. You may also check out its peers with an A (Strong Buy) or B (Buy) rating: ARC Document Solutions, Inc. (ARC), Civeo Corp. (CVEO), and Insperity, Inc. (NSP).

CTAS shares were trading at $445.07 per share on Thursday afternoon, down $14.21 (-3.09%). Year-to-date, CTAS has gained 1.48%, versus a -16.93% rise in the benchmark S&P 500 index during the same period.

About the Author: Santanu Roy

Having been fascinated by the traditional and evolving factors that affect investment decisions, Santanu decided to pursue a career as an investment analyst. Prior to his switch to investment research, he was a process associate at Cognizant. With a master's degree in business administration and a fundamental approach to analyzing businesses, he aims to help retail investors identify the best long-term investment opportunities.


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