It looks like Cintas Corporation (NASDAQ:CTAS) is about to go ex-dividend in the next 4 days. You will need to purchase shares before the 7th of November to receive the dividend, which will be paid on the 6th of December.
Cintas's next dividend payment will be US$2.6 per share, which looks like a nice increase on last year, when the company distributed a total of US$2.1 to shareholders. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Cintas can afford its dividend, and if the dividend could grow.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Cintas is paying out just 24% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. A useful secondary check can be to evaluate whether Cintas generated enough free cash flow to afford its dividend. It paid out 24% of its free cash flow as dividends last year, which is conservatively low.
It's positive to see that Cintas's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. It's encouraging to see Cintas has grown its earnings rapidly, up 26% a year for the past five years. With earnings per share growing rapidly and the company sensibly reinvesting almost all of its profits within the business, Cintas looks like a promising growth company.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Cintas has delivered an average of 18% per year annual increase in its dividend, based on the past ten years of dividend payments. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.
To Sum It Up
Has Cintas got what it takes to maintain its dividend payments? Cintas has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. Cintas looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
Ever wonder what the future holds for Cintas? See what the 13 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
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