Dividend Stock Analysis

Cintas Dividend Stock Analysis

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Cintas (NASDAQ: CTAS) provides highly specialized products and services to businesses of all types throughout the United States, Latin America, Europe and Asia.

The Company operates in four segments: (1) Rental Uniforms and Ancillary Products (2) Uniform Direct Sales (3) First Aid, Safety and Fire Protection Services, and (4) Document Management Services. As of May 31, 2010, the Company provided products and services to approximately 800,000 businesses.

Dividends and FCF have shown significant growth over the years.  Dividends have grown by 8.98% on average while free cash flow per diluted share has grown, on average, by 19.4%, far outpacing the dividends.

It is in EPS that a significant decline occured in 2008 and 2009.  One would assume the overall economic conditions are the main culprit in this, but this may not be the case.  Revenue has grown by 5.6% a year, and diluted share outstanding have decreased from 169 million to 152 million.  So where is that money going?

According to this graph, the increase in revenues has been offset by a declining net margin.

While gross margins have remained relatively stable, net margin has decreased from 10.3% to 6.08%.  This is something that warrants further investigation.

The balance sheet for CTAS is clean.  A current ratio of 3.97 is stable, and debt to total capital employed has stayed below 35%.

CTAS dividend has plenty of room for growth.  Even though the EPS payout ratio has climbed in recent years due to lack in EPS growth, it still sits well below 60%.  And with the strong FCF growth, the cash payout ratio has been trending downwards.

At the current price, Cintas yields 1.76% and trades at a forward p/e of 17.27 and a trailing p/e of 19.49.  I think Cintas deserves a spot on your watch list, but I’m not buying at this price.

In addition, I will wait and see how their international expansion works out and if their margins remain stable.

Full Disclosure:  I do not own an CTAS.  My current portfolio holdings can be found here

I'm a dividend growth investor who is aiming to retire early in 5 years at the age of 45. My goal is to live off the income my dividend portfolio and rental property produce exclusively and leave the corporate rat race. I hope you will join me in this journey!

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