Business services provider Cintas Corporation CTAS recently announced a 23.5% year-over-year hike in its annual dividend payout to $1.05 per share. The dividend is payable on Dec 4 to shareholders of record as of Nov 6.
Based on the closing price of $90.68 on Oct 14, 2015, the proposed dividend offers a yield of approximately 1.1%. The dividend hike is part of the long-term strategy of the company to return significant free cash flow to shareholders and represents the 32nd consecutive year in which it has been raised.
The dividend increase comes close on the heels of solid first-quarter results, wherein Cintas recorded healthy top-line growth. Cintas started fiscal 2016 on a strong note with net income of $106.2 million or 93 cents per share compared with $105.9 million or 89 cents per share in the year-earlier quarter. The reported earnings for the quarter comfortably beat the Zacks Consensus Estimate by 3 cents. Quarterly revenues increased 8.8% year over year to $1,198.9 million and exceeded the Zacks Consensus Estimate of $1,174 million. Organic growth for the reported quarter was healthy at 6.8%. The superior top-line performance was primarily attributable to the addition of newer customers and higher penetration levels of existing customers through better and innovative products and services.
Moving forward, Cintas has a strong balance sheet with adequate liquidity to meet its working capital requirements. Over the years, the company has consistently returned significant cash to its shareholders through dividends and share repurchases. The company’s investment strategy takes a holistic view of the rapidly evolving market and deploys a dynamic capital allocation approach to focus on the relative value of the various sectors within the broader industry. In order to enhance shareholder value, Cintas has also modified its share repurchase program. Under the new share repurchase program, the company has doubled its share authorization tally to enable the repurchase of an additional $500 million worth of stock over a period of time. The additional shares over its existing $500 million share repurchase authorization could be repurchased through a slew of open market transactions.
Cintas currently has a Zacks Rank #2 (Buy). Other stocks in the industry worth reckoning include FTI Consulting, Inc. FCN, G&K Services Inc. GK and Huron Consulting Group Inc. HURN, each carrying the same Zacks Rank as Cintas.
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