Cintas: A Wonderful Dividend Aristocrat

Mar 28, 2025 8 min read

Patrick

“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”

– Warren Buffett

arvy’s teaser: Cintas is a leader in the outsourced uniform and facility services market, with consistent growth, unmatched customer loyalty and 41 years of dividend growth. A dividend aristocrat on its way to becoming dividend king – but there’s a catch…

Uniform rentals and facility services.

Doesn’t sound like the most thrilling business to start, right?

But here’s the thing: in the world of investing, “boring” companies often deliver the best returns. While everyone chases the next Amazon or Tesla, what if the real goldmine lies in a business that handles everyday needs – things we don’t think twice about but absolutely rely on? That’s where outsourcing comes in. Business owners know the value of handing over tasks that are necessary but not worth their time.

This is where the largest provider of outsourced uniform rental and facility services in North America comes in.

Cintas.

Chart 1: Uniform market share by company – garment rental only

Source: Robert W. Baird & Co, 2021

Secular Trend of Businesses Outsourcing

As you know, one of the key factors we look for in a “Good Story” is a structural growth trend.

Investing in a company with favorable market dynamics is like sailing with the wind at your back – it just makes things easier. Why fight the current when you can ride it?

Outsourcing is one such trend. It’s all about handing over non-core tasks to specialists who can do them more efficiently. Think of it as freeing up your time and energy to focus on what really matters.

At arvy, we do the same thing. The three of us – Florian, Thierry, and myself, Patrick – handle the core activities, while everything else, from legal and compliance to app development and accounting, is outsourced to specialists. This allows us to focus on what we do best: managing your wealth.

This isn’t just a niche practice. It’s a massive secular trend sweeping through businesses across every industry. And when it comes to outsourcing uniform rental and facility management in the US, there’s no bigger name than Cintas, which commands about 40% of the market share (chart 1). In Switzerland, the equivalent powerhouse is ISS, from Sursee Lucerne, a name you’re probably familiar with.

Cintas helps over 1 million businesses confidently open their doors every day, offering a wide range of services designed to keep both employees and facilities clean, safe, and professional. From uniforms and floor care to restroom supplies, first aid products, fire extinguishers, and safety training, Cintas truly helps companies get “Ready for the Workday®.”

The incredible part?

Despite being the market leader (chart 2), Cintas only serves 1 million companies out of 16 million potential customers. In addition, more than 80% of prospects are not yet served and 60% of new business comes from customers who have not yet participated in a rental program.

This massive untapped market represents significant room for growth.

And Cintas is perfectly positioned to seize it.

Chart 2: Cintas’ vision, market and diverse customer base

Source: Cintas

Dividend Aristocrat soon to Become a Dividend King

Cintas is the biggest player in its field, and it plays this role to perfection.

On the customer side, Cintas provides services at a lower cost than businesses could achieve on their own, thanks to its vast scale, national reach, and buying power.

Outsourcing these services to Cintas isn’t just a good idea – it’s a no-brainer.

When it comes to competition, Cintas has left its closest rivals, like Vestis (formerly Aramark) and UniFirst, in the dust over the past decade. Through superior digital analytics, industry-leading employee retention, and a streamlined delivery network, the company has not only achieved higher margins but also increased profits. This operational excellence has allowed Cintas to reinvest at a higher rate, resulting in a 20% return on invested capital over the last ten years.

Boom! That’s a double whammy right there.

But I’d say all good things come in threes, so I’ll give you one more thing to love about Cintas.

The founding Farmer family still owns more than 14% of the stock, and the current Executive Chairman, Scott Farmer, is the founder’s son. This family ownership has fostered a long-term vision and a customer-centric culture that’s hard to beat.

Ok, because it’s so much fun, let’s drop another one.

As Cintas has 1 million customers, the largest customer accounts for no more than 3% of sales. And to avoid problems with the products they need for the daily work for these many customers, the company minimizes the risk of a single supplier by having two or more suppliers for over 90% of its products.

Okay, now let’s wrap it up with a cherry on top. Cintas has such a stable and predictable business model due to its diversification – across customers, suppliers, regions, and business units – that it’s been able to increase its dividend every single year since 1983. That’s 41 years in a row (chart 3)!

What does that mean? Cintas is a Dividend Aristocrat that’s on track to become a Dividend King in just nine more years.

Okay, Patrick, enough is enough, I need to catch my breath, give me a minute.

Where’s the catch?

Chart 3: Cintas dividend per share since 1983

Source: Cintas, Annual reports

Quality has its Price

There’s no denying that Cintas is a wonderful business.

I mean, just think about it: Cintas has generated positive free cash flow every year since its IPO in 1983, even during the two most recent crises, the global financial crisis and the Covid-19 pandemic.

Remarkable!

But quality has its price. Cintas’ valuation is clearly above its 10-year historical averages. Looking at the free cash flow yield (2.4% vs. 3%) and the price-to-earnings ratio (42 vs. 31), it’s safe to say that Cintas is priced at a premium.

To put it bluntly, it’s richly valued, and the margin of safety is thin.

This was evident in the Q4 24 earnings report – Cintas delivered as expected, but the stock saw some weakness. It’s a sign that, while the business is exceptional, it might be pushing the boundaries of what’s considered “fair.”

Let’s remember Warren Buffett’s wisdom here: It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.

So, we have a wonderful company.

But not a fairly valued one.

I am waiting in ambush.

Chart 4: Cintas over the last ten years