Updated 6/2/25
McGrath RentCorp, trading under the ticker MGRC, is a California-based equipment rental company with a market cap around $2.8 billion. Its core operations span modular buildings, portable storage, and test equipment, serving schools, government entities, and commercial clients. With over 30 consecutive years of dividend growth and a low payout ratio near 20%, MGRC has carved out a reputation for consistency and strong cash flow generation.
Recent Events
In the first quarter of 2025, McGrath posted $918.5 million in revenue, showing a modest 4% increase over the prior year. At face value, that might not impress—but earnings grew a much stronger 23.5%. That kind of operating leverage is a good sign, showing that MGRC is running an efficient ship and finding ways to turn modest top-line growth into real bottom-line gains.
And the quality of those earnings is solid. Free cash flow came in at $180.8 million over the past year. That gives the company more than enough breathing room to fund its dividend, reinvest in growth, and keep the balance sheet in check. Total debt is manageable, and the company holds a current ratio of 2.03, indicating no short-term liquidity concerns.
Perhaps most notable is the return on equity: 22.8%. That’s not just strong—it’s efficient. For a company with such a physical asset-heavy model, it’s impressive how well they convert equity into profit. It speaks volumes about the strength of the business model and how well management is steering the ship.
Key Dividend Metrics
📈 Forward Dividend Yield: 1.73%
💵 Forward Dividend Rate: $1.94 per share
📊 Payout Ratio: 19.69%
📆 5-Year Average Yield: 2.01%
🔁 Dividend Growth Streak: Over 30 consecutive years
💪 Free Cash Flow Coverage: Strong, with nearly double coverage
🧱 Debt-to-Equity Ratio: 49.2%
📅 Last Dividend Paid: April 30, 2025
⏰ Ex-Dividend Date: April 16, 2025
Dividend Overview
At first glance, MGRC’s dividend yield of 1.73% might not grab your attention, especially if you’re hunting for higher yielders. But what it lacks in sheer size, it makes up for in reliability. The payout ratio is just under 20%, leaving plenty of room for flexibility. This is not a company stretching to impress with a high payout—it’s one that’s built a dependable system and sticks to it.
The rental business model gives MGRC some nice tailwinds. With long-term contracts and recurring income, the company doesn’t face the same quarterly pressures that hit more cyclical firms. That consistency flows right through to dividend stability. Even in tougher economic conditions, McGrath’s predictable revenue stream supports continued shareholder returns.
And that’s not an accident. Management has clearly prioritized dividend sustainability. This is a business that thinks long-term—one that chooses to keep payouts steady and modest rather than chase short-term excitement.
Dividend Growth and Safety
This is where MGRC truly shines. The company has increased its dividend annually for over three decades. That kind of track record is rare. The increases aren’t enormous—usually between 2% and 5%—but they’re consistent. For investors looking to build a reliable and growing income stream, that slow and steady approach is gold.
Safety is another strong suit here. With a conservative payout ratio and consistent free cash flow, there’s little reason to worry about a dividend cut. Even during rough patches, McGrath’s model and cash management leave plenty of cushion. They aren’t just covering the dividend—they’re doing so with room to spare.
Capex needs are ongoing, as you’d expect for a rental-focused operation, but MGRC still generates solid free cash flow after investments. They’ve built a business that pays its bills, grows organically, and supports a steady dividend. That’s a winning combination for dividend-focused investors who care about predictability over splash.
At the end of the day, McGrath RentCorp won’t be the star of your dividend portfolio—but it doesn’t need to be. It’s the kind of stock that sits quietly in the background, doing exactly what you hoped it would: deliver reliable income without unnecessary drama.
Cash Flow Statement
McGrath RentCorp’s cash flow profile over the trailing twelve months reveals a business operating with strong internal funding. Operating cash flow reached $368.8 million, a significant figure that reflects efficient operations and solid earnings quality. After accounting for $143.1 million in capital expenditures, free cash flow came in at $225.8 million. That level of free cash flow offers both stability and flexibility, particularly for a company with a low dividend payout ratio.
On the investing side, MGRC showed restraint with outflows of $75.3 million, a sharp reduction from the more aggressive capital allocation seen in recent years. Financing cash flow, meanwhile, was negative $292 million, reflecting a more cautious approach to debt and capital structure. While there were no new debt issuances in the last year, repayments and reduced financing activity point to a focus on deleveraging. The company ended the period with $3.4 million in cash, which may seem low, but the underlying cash generation suggests they don’t need a large buffer on hand. The structure here shows a company that runs lean, reinvests wisely, and funds shareholder returns from genuine profitability.
Analyst Ratings
📈 McGrath RentCorp has recently been catching the eye of analysts, with a generally upbeat tone across the board. The stock now carries a consensus “Buy” rating, and the average 12-month price target sits around $145.50. With shares trading near $112, that points to a potential upside of roughly 26%, which is not insignificant for a company known more for stability than explosive growth.
💬 Back in December 2024, CJS Securities initiated coverage with a Buy call and pegged the stock’s target at $152. The firm highlighted MGRC’s steady earnings growth, reliable free cash flow, and a disciplined approach to capital spending as the key reasons for optimism. Around the same time, Oppenheimer reaffirmed its own Buy rating and nudged its target price up from $124 to $139. The drivers? Continued revenue growth and tight cost control—two things that are becoming trademarks of McGrath’s operating strategy.
📊 Analysts are clearly valuing the consistency McGrath brings to the table. With a clean balance sheet, healthy cash generation, and solid returns on equity, MGRC is drawing bullish sentiment without needing to reinvent the wheel. It’s not a moonshot story—it’s a grounded, dependable performer that’s earning quiet respect.
Earning Report Summary
Steady Start to the Year
McGrath RentCorp opened 2025 on a solid note, posting first-quarter revenue of $195.4 million. That’s about a 4% bump from where they were a year ago—not a blockbuster number, but it’s steady progress. Net income came in at $28.2 million, which works out to $1.15 per share and managed to edge out what the market was expecting. Adjusted EBITDA ticked up as well, rising to $74.5 million. All in all, the core numbers painted a picture of a business moving in the right direction.
Modular Strength Balances Out Storage Weakness
The company’s bread and butter right now is clearly its Mobile Modular division. That segment brought in $131.9 million in revenue, and its adjusted EBITDA grew by 10% to hit $47.6 million. The strength here came mostly from continued demand in both commercial and education markets—areas where McGrath has built long-term relationships and knows how to deliver.
The Portable Storage business, on the other hand, had a tougher time. Rental revenues in that segment dropped by 13%, and adjusted EBITDA slid 25%. The softness in commercial construction demand is the likely culprit here, and McGrath didn’t shy away from acknowledging the pressure in that space.
Management’s View and the Road Ahead
CEO Joe Hanna spoke confidently during the earnings call. He pointed to the momentum in the modular business and said they’re encouraged by how some of the newer modular sales initiatives are unfolding. At the same time, he didn’t gloss over the challenges—especially on the portable storage side—but made it clear that margin protection and long-term strategy remain key priorities.
The company also adjusted its full-year revenue guidance just slightly, narrowing the range to between $920 million and $960 million. It’s a modest tweak, but it shows they’re keeping a close eye on market conditions. There’s still some caution around customer project delays or broader economic shifts, but McGrath continues to invest in what it sees as sustainable growth opportunities.
All said, it was a quarter that showcased what McGrath does best: run a disciplined, cash-generating business that doesn’t chase hype but sticks to what works.
Management Team
At the helm of McGrath RentCorp is Joseph F. Hanna, who has served as President and Chief Executive Officer since 2017. With over eight years in leadership, Hanna has guided the company through various market cycles, emphasizing operational efficiency and strategic growth. His compensation reflects a performance-based structure, with a significant portion tied to company stock and options, aligning his interests with those of shareholders.
Supporting Hanna is Keith E. Pratt, the Executive Vice President and Chief Financial Officer, who brings extensive financial expertise to the team. David M. Whitney, appointed as Senior Vice President and Chief Accounting Officer in January 2025, adds depth to the company’s financial oversight. The management team boasts an average tenure of over eight years, indicating stability and a deep understanding of the company’s operations.
The board of directors, led by Chairman Bradley M. Shuster, comprises individuals with diverse backgrounds in finance, operations, and strategy. Their collective experience provides robust governance and strategic direction, ensuring that the company remains focused on long-term value creation.
Valuation and Stock Performance
McGrath RentCorp’s stock is currently trading at approximately $112.38, with a market capitalization of around $2.8 billion. The company’s price-to-earnings (P/E) ratio stands at 12x, which is lower than the industry average of 20.2x, suggesting that the stock may be undervalued relative to its peers. Analysts have set a consensus 12-month price target of $144, indicating potential upside.
In terms of financial metrics, the company boasts a return on equity (ROE) of 22%, a net margin of 25.8%, and a debt-to-equity ratio of 0.49. These figures reflect strong profitability and prudent financial management. The company’s dividend yield is 1.68%, with a payout ratio of 19.8%, indicating a sustainable dividend policy.
Over the past year, the stock has experienced modest growth, with a 4.6% increase, outperforming the US Trade Distributors industry, which saw a decline of 14.7% during the same period. This performance underscores the company’s resilience and consistent execution of its business strategy.
Risks and Considerations
While McGrath RentCorp has demonstrated strong financial performance, several risks warrant consideration. The company’s decision to separate its modular building and portable storage segments into distinct entities introduces complexity in financial reporting and may lead to investor confusion. Additionally, the reallocation of management resources and potential expenses associated with this restructuring could impact operational efficiency.
Economic uncertainties, particularly in the construction sector, pose a risk to rental and sales revenues. Soft demand in the portable storage and telecommunications rental services businesses could further pressure financial performance. The company also faces challenges related to managing its rental assets effectively, integrating acquisitions, and navigating regulatory changes.
Furthermore, McGrath RentCorp’s reliance on debt financing, while currently at manageable levels, could become a concern if the company takes on additional debt to fund growth or if interest rates rise significantly. The company’s exposure to economic cycles and industry-specific factors may also impact its profitability and growth prospects.
Final Thoughts
McGrath RentCorp presents a compelling case for investors seeking a stable, dividend-paying company with a track record of consistent performance. The company’s strong management team, solid financial metrics, and strategic focus on long-term growth position it well within the equipment rental industry. While certain risks exist, including economic uncertainties and operational challenges, the company’s prudent financial management and diversified business model provide a buffer against potential headwinds.
As the company continues to execute its strategic initiatives and navigate market dynamics, it remains a noteworthy consideration for investors aiming to balance income generation with capital appreciation.