On March 9, 1999 — 19 years ago this week — Wilmington-based UniFirst paid to its shareholders a quarterly dividend of 3.75 cents per share. Its share price at the time was $21 a pop, providing investors a rather modest yield of 0.7 percent.
UniFirst, a provider of workplace uniforms and laundering services, has since grown by leaps and bounds. It’s a global company, posting revenues of nearly $1.6 billion for its most recent fiscal year, which ended last August. Its share price is now $157.50 per share, up seven and a half times from where it was when it issued that 3.75-cent-per-share dividend payout.
So guess what its quarterly dividend is now? Yup, it’s still 3.75 cents per share. In case you’re bad at decimals that comes to 15 cents per share annually. At the current share price, it’s a yield of less than 0.1 percent. It hardly matters.
The question is: Why? Why hasn’t UniFirst, an extraordinarily successful company for decades — it was founded in 1936 — upped its dividend in nearly 20 years?
It’s not like it’s never happened before, although the company appears to have always gone in baby steps. Its annual revenues had reached $100 million when UniFirst began issuing dividends in 1986, and the quarterly payout was 1.25 cents per share. Oddly, its first decision to alter the payout was in fact a cut, in November 1989, when it paid 0.75 cents per share — but it was just for that one time. Then in 1990, the new quarterly dividend was 1.5 cents per share. In 1992, it was increased to 2.5 cents per share, in 1996 to 3 cents per share, and then, as noted at the top of this story, in 1999 it was increased to 3.75 cents per share.
Where it has stayed ever since.
By no means is the dividend a heavy lift for UniFirst. According to Morningstar, the current payout represents just 4 percent of the company’s profits. That’s puny.
To be clear, it would carry some risk for UniFirst to pay what might be considered even a semi-healthy dividend. To get to a 2 percent yield, the company would have to pay out more than 20 times as mush as it does now. That means 4 percent of profits becomes 80 percent of profits, and that’s not responsible. Going to a yield of 1 percent is far more palatable. It also appears safe, given the steady growth and stability of UniFirst’s business.
Analysts are calling for net income of $5.56 per share in the current fiscal year, up about 8.5 percent from the $5.12 per share earned last year. Revenues are forecast to be $1.65 billion, up a more modest 3.5 percent. For fiscal 2019 (I know, this is dangerous, as a lot can happen) the estimates are earnings of $6.14 per share on revenues of $1.7 billion.
Last year, history was made at UniFirst when it promoted 43-year-old Steven Sintros to become its CEO after longtime top executive Ronald Croatti died unexpectedly in May. Croatti was the son of founder Aldo Croatti, and had led UniFirst for 26 years (he even made an appearance on the hit TV show “Undercover Boss” in 2011). You’d be hard-pressed to question the growth that Croatti was able to achieve and, given the share price, how UniFirst investors benefited.
But the stock is godawful expensive now, at more than 30 times fiscal 2017 earnings and nearly 29 times expected 2018 earnings. It’s hard to imagine the stock continuing to be rewarded with this kind of premium with earnings growth expected to be in the mid to upper single digits.
And at some point, growth is going to get even harder for UniFirst, and when that time comes it’s dividends that will keep investors interested. Perhaps the company would be well-advised to start addressing this.
Disclosure: I do not own shares of UniFirst.