Outstanding S&P 500 Dividend Share Dropping by 20% in 2025 for Purchase and Long-term Retention
Ditching the hype surrounding high-yield dividend stocks that offer big payouts upfront but little growth in the long run, I'm all about dividend growth stocks with massive potential for passive income in the future. Unsung hero, Cintas (CTAS), is a fine example, despite its current 0.8% dividend yield.
If you'd invested in Cintas 10 years ago and held on, you'd now be reaping a fat 8% yield based on your initial investment, thanks to dividend hikes that multiplied payments sevenfold during that time.
But don't be fooled by the humble yield – Cintas shows no signs of slowing its roll. Fresh off a 20% slump in share prices lately, here's why Cintas should be on your radar as an S&P 500 dividend stock to consider in 2025.
Cintas: Leading the Niche, With Room to Roam
Whether it's scrubbing toilets, supplying uniforms, or restocking everyday essentials, Cintas is the go-to for keeping businesses neat and tidy. With a motto that boils down to "if a business needs something, Cintas is ready to serve," they've become the market leader in ensuring workplaces are ready each day.
CEO Todd Schneider puts it best: "Whether it's a front door that needs a mat, a bathroom to service, exit lighting, fire extinguishers and sprinkler systems, first aid and safety needs, or an apparel solution, we cater to virtually every business need."
Cintas serves over 1 million clients, half of whom are from services sectors like healthcare, food, and hospitality, while the other half comes from goods-producing markets like manufacturing and construction.
Since they dominated in North America more than three decades ago, Cintas' growth story is far from over. North America plays home to an eye-popping 16 million businesses, leaving plenty of room for further expansion. What's more, Cintas' long-tenured management boasts a history of profiting growth, as evident in their high and rising ROIC and improved cash generation.
Profitability and Shareholder Returns in Overdrive
Revenue growth has been steady and constant, with an 8.86% increase to $9.60 billion in 2024[5]. Meanwhile, earnings have surged, with a 16.62% gain in 2024 to $1.57 billion[5].
It's the cash generation where things truly shine. Since 2014, cash from operations near quadrupled, while capital expenditures only doubled. This means Cintas generated more greenbacks while investing less in expanding operations, leading to a boost in FCF.
The result? A top-tier cash ROIC of 27%, ranking in the top 10% of S&P 500 stocks. What's more, stocks with high ROICs, like Cintas, have historically outperformed their peers[4].
Cintas' logistical network becomes increasingly profitable as it adds new customers to its 11,000-plus distribution routes, whether through acquisitions or organic growth.
And the dividends? They've followed suit. The company's dividend has grown by 26% annually over the last decade, without breaking a sweat. Even with the boost, Cintas only shells out 30% of its FCF for dividends, leaving room for even more payouts down the line.
On top of the dividend growth, the company has reduced its outstanding shares by 1.5% annually since 2014, further enhancing shareholder returns.
Cintas' Drop: An Opportunity, Not a Red Flag
Despite surpassing earnings expectations and raising the midpoint of its guidance on Dec. 19th, Cintas shares have tanked by 20% since. But fear not – the stock price slide stems more from market expectations than any underlying problem with the business.
In Q2 alone, the company delivered impressive results, with sales, FCF, and dividend payments growing by 8%, 14%, and 15% respectively[2]. And with a price-to-FCF now close to the S&P 500's average in the mid-30s, Cintas' premium valuation is more justified than ever.
Yes, it's no deep discount, but the company's non-discretionary operations, long-term growth prospects, soaring cash generation, and ever-growing dividend make a compelling case for the premium ticker.
So, while the stock might not be a firesale bargain, I'm confident that in 2035, I'll be proud to have bought a basket of Cintas shares back in 2025.
- Focusing on long-term investment strategies, one could consider dividend growth stocks like Cintas, which has the potential to offer substantial passive income in the future.
- If an individual had invested in Cintas a decade ago and held onto their shares, they would now be earning a substantial 8% dividend yield, a testament to the company's consistent dividend hikes.
- Preparing for future generations, investing in Cintas could be a smart decision due to its strong financial performance, robust cash generation, and a history of increasing dividends nearly every year.
- Prioritizing dividends, Cintas has shown a commitment to shareholder returns, increasing its dividend payouts by 26% annually over the past decade while also reducing its outstanding shares, improving shareholder returns.
