Is It Time To Buy Dividend Aristocrat Cintas (NASDAQ: CTAS)

Employment Services, They Took A Hit In The 4th Quarter

Cintas (NASDAQ: CTAS) is one of my favorite stocks of all time and a great play on the labor market. When I first became aware of the company it was trading in the $80 range and has since seen its shares skyrocket to over $300 each. In that time, the company has also been steadily increasing its dividend distribution earnings itself Dividend Aristocrat status. The company just released its fiscal 4th quarter results, calendar 2Q, raising the question is it time to buy more of this stock or wait for the next best opportunity?

Headline results for the quarter and the year are good. The company beat top and bottom-line estimates for the 4th quarter putting full-year results firmly above the analyst’s consensus. The problem, if there is one, is the outlook for next year, the coming fiscal year. The consensus for 2021 is for a decline in both revenue and earrings but there is a caveat.

Unlike many other companies in the market today, Cintas 2020 results only include 1 quarter of pandemic conditions and nearly none of the rebound. The fourth quarter of the year saw revenue and earnings decline, but first three quarters of the year were awesome with a sustained high-single-digit growth rate. In that light, the comps for next year are less bad than they might seem and, when coupled with 4th quarter outperformance, easily beaten.

Scott D. Farmer, Cintas' Chairman, and Chief Executive Officer, stated, "The COVID-19 coronavirus (COVID-19) pandemic was a significant disruption to the economy as well as to our business in our fiscal 2020 fourth quarter. The government-required closure of many businesses certainly had an impact on our fiscal 2020 fourth-quarter financial results.”

Cintas Results And Outlook, Better Than Expected

Cintas beat 4th quarter consensus for both revenue and earnings. Revenue fell -9.5% for the quarter YOY but beat by $60 million or 3.7%. For the full-year, revenue came in about 3.8% above the consensus. On the bottom line, Adjusted and GAAP EPS of $1.35 both beat by about $0.12 putting the full-year total at $8.11 or up 1.5%.

While Cintas refrained from giving guidance due to the pandemic, resurgence of spread, and unknown outcome of Federal stimulus money but it did give color on the 1st quarter. So far, with more than half the quarter behind it, the company sees itself on track for revenue and earnings expansion from the previous quarter. Revenue is expected in the range of $1.675 to $1.70 billion, a gain of 3.3% to 5.0%, and EPS in the range of $2.10 or up 55%. While not stunning, the figures are promising and put the company on track to beat current consensus.

Cintas Dividend Is Safe, Sound, Growing, But Small

Cintas is a great dividend stock with very little expectation for distribution cuts or suspension and every expectation for growth. The 2020 results have the payout ratio higher that it tends to run but still very very low at 32%. Looking forward the payout ratio is expected to creep higher next year but is offset by the company’s cash position and free-cash-flow. Despite the downturn in 4th quarter revenue Cintas’ efforts to maintain its fortress-like balance sheet resulted in the highest FCF all year. Notably, the G&K acquisition/merger has been completed regarding its financial impact on the business.

The problem with Cintas dividend is its yield which is less than 1.0% with shares near $290. That said, investors can expect additional distribution increases over the coming years and that is a good thing. The company is well-positioned in today’s market but the days of aggressive capital growth are probably over for at least another year or two.

Cintas Technical Outlook: Promising But I Think Patience Is In Order

The chart of Cintas looks good. The stock corrected in February but like so many others has staged a pretty impressive rebound. The 4th quarter results have share prices higher in the early action and breaking to new highs but there is some risk. Considering that Cintas days of growth are over for a while and the possibility of strong resistance at the recent all-time high I am leery of putting new money to work here.

I have no problem leaving money on the table, the dividend is still quite safe and growing, but I won’t feel confident about capital gains until growth is back in the picture. Until then, there is a risk of another correction when price action hits the all-time high, if not before. A move and close above the $300 mark would be a bullish trigger for me, if not then a move down to the $260 level looks possible. The risk in this market is great, however, because a COVID-19 vaccine will unleash the economy and labor market like no other event in history.