We recently compiled a list of the 8 Magnificent Dividend Growth Stocks to Buy Now. In this article, we are going to take a look at where Cintas Corporation (NASDAQ:CTAS) stands against the other magnificent dividend growth stocks.
This year, dividend stocks have underperformed compared to the broader market, largely because tech stocks have captured most of the attention. The Dividend Aristocrats Index, which tracks companies with at least 25 consecutive years of dividend growth, has risen by nearly 10% year-to-date, compared to the broader market’s almost 24% gain. Despite this, dividend stocks remain a reliable choice for investors, consistently delivering returns to shareholders regardless of market conditions.
Investors tend to favor companies with strong histories of dividend growth. This preference stems from the fact that such stocks have reported solid long-term returns, often outperforming the broader market. According to a report by RMB Capital, dividend growers and initiators delivered an annual average return of 9.62% from 1972 to 2018, compared with a 2.40% return of the companies that did not pay dividends. Moreover, the broader market returned 7.30% during this period, underperforming dividend growers. The report further mentioned that companies with a track record of increasing dividends have demonstrated their ability to not only maintain but also grow payouts, even during market downturns. From a portfolio management standpoint, dividend growth portfolios offer good diversification, as companies with consistent dividend growth are typically spread across various industries. This provides an edge over portfolios that prioritize high dividend yields, which are often concentrated in mature sectors such as utilities and, before 2007, financials.
Also read: Dividend Contenders List: Top 15
Analysts suggest including dividend stocks in income portfolios. This recommendation is bolstered by the fact that several leading tech companies introduced dividend policies this year and are likely to sustain dividend growth over time, supported by their strong cash flows. David Harrell, editor of Morningstar’s DividendInvestor newsletter, shared his insights on dividend growth during a recent interview with the firm. Here are some comments from the analyst:
“You see headlines about dividend increases. That’s generally viewed as positive. There’s this whole idea of dividend growth investing by identifying companies that are growing their dividends at a regular pace. That’s indicative of companies with strong growing earnings. That’s considered positive. There’s also this idea that dividend stocks can be defensive in recessionary periods.”
While dividend stocks have shown slower performance this year, companies continue to raise their dividends steadily. A recent report from S&P Dow Jones Indices revealed that 480 dividend hikes were recorded in Q3 2024, up from 448 in Q3 2023, reflecting a 7.1% year-over-year growth. The total value of these increases for the quarter reached $14.1 billion. The report also mentioned that over the past 12 months, total dividend increases amounted to $74.7 billion, marking a rise from $63.9 billion in the previous 12-month period.
Our Methodology:
For this article, we scanned the list of Dividend Aristocrats, which are the companies that have raised their payouts for 25 consecutive years or more. From that list, we picked 8 companies with the highest 5-year annual average dividend growth rates. The stocks are ranked in ascending order of their annual average dividend growth in the past five years.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
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Cintas Corporation (NASDAQ:CTAS)
5-Year Average Annual Dividend Growth Rate: 22.3%
Cintas Corporation (NASDAQ:CTAS) is an Ohio-based company that provides a range of products and services primarily focused on workplace essentials, including uniform rental and facility services. The company operates across numerous industries, providing diversification and access to an almost unlimited market potential. The stock has delivered significant returns to investors, with its share price increasing by nearly 240% over the past five years, far outpacing the broader market’s 91% gain during the same period.
Cintas Corporation (NASDAQ:CTAS) reported solid earnings in fiscal Q1 2025. The company’s revenue for the quarter came in at $2.5 billion, up 7% from the same period last year. The company has revised its full-year financial guidance upward. Annual revenue projections have been adjusted from the previous range of $10.16 billion to $10.31 billion to a new range of $10.22 billion to $10.32 billion. Similarly, diluted EPS guidance has been raised from $4.06 to $4.19 to a new range of $4.17 to $4.25.
Cintas Corporation (NASDAQ:CTAS)’s cash position is contributing to its dividend policy. In the most recent quarter, the company reported an operating cash flow of $466.7 million, which grew from $337 million in the same period last year. ClearBridge Investments mentioned CTAS in its Q4 2023 investor letter. Here is what the firm has to say:
“The recent market upswing enabled us to harvest profits from some of our larger cap holdings and put the proceeds to work across four newer positions. We added significantly to Cintas Corporation (NASDAQ:CTAS), a position initiated late in the third quarter. Cintas maintains a leading position in a fragmented, $40 billion market for uniform rental and facilities services. The company’s scale gives it better purchasing power, route density and technology, which have historically led to better price and service levels. Its position also enables industry-leading retention rates and sustainably higher returns on invested capital. Finally, Cintas has demonstrated a strong track record of improving margins. This addition not only supports our efforts to increase the aggregate quality and growth of the portfolio, but also acts to further diversify our industry exposures.”
Cintas Corporation (NASDAQ:CTAS) currently offers a quarterly dividend of $1.56 per share. The company has been rewarding shareholders with growing dividends for the past 41 consecutive years. With a 5-year average annual dividend growth rate of 22.3%, CTAS is one of the best dividend aristocrat stocks on our list. The stock’s dividend yield on November 14 came in at 0.72%.
Overall CTAS ranks 1st on our list of the magnificent dividend growth stocks to buy now. While we acknowledge the potential of CTAS as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than CTAS but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.
Disclosure: None. This article is originally published at Insider Monkey.
