Herc Holdings: A Dividend Powerhouse with Momentum in Infrastructure’s Golden Age

The equipment rental sector is a quiet giant of the global economy, underpinning construction, manufacturing, and energy projects. Among its leaders, Herc Holdings (HRI) has emerged as a standout, leveraging strategic acquisitions and disciplined capital allocation to fuel dividend growth. A 5% dividend hike to $0.70/share in early 2025, paired with its pending acquisition of H&E Equipment Services, signals Herc is positioned to capitalize on infrastructure tailwinds while rewarding investors with sustainable income and upside potential.

Dividend Sustainability: A Track Record of Growth and Prudent Management

Herc’s dividend history since 2021 reveals a pattern of consistent, deliberate increases. After initiating dividends in 2021, the company raised payouts by 5% in 2024 (to $0.665/share) and another 5% in 2025 (to $0.70/share). This marks four consecutive years of dividend hikes, a rarity in an industry often constrained by cyclical demand.

What underpins this reliability? Cash flow stability. Herc’s adjusted EBITDA surged 9% to $1.583 billion in 2024, with margins holding steady at 44.4%, despite inflation and operational headwinds. Even net income dipped due to a one-time loss from its Cinelease division sale, adjusted net income rose 5%, reinforcing the durability of its core operations.

The dividend’s affordability is further supported by Herc’s debt management discipline. With a net leverage ratio of 2.5x—below industry averages—and $1.9 billion in liquidity, the company retains flexibility to fund acquisitions without overextending. This prudence is critical as Herc expands its footprint.

Strategic Acquisitions: Building a Scale Advantage

Herc’s pending acquisition of H&E Equipment Services, finalized in February 2025, is a masterstroke. The $78.75/share deal adds 230 locations to Herc’s existing 453, boosting its presence in high-growth regions like Texas and the Southeast. Management projects $74 million in annual synergies by Year 1, including cost savings and cross-selling opportunities.

The move also strengthens Herc’s specialty equipment portfolio, integrating H&E’s expertise in construction, energy, and agriculture rentals. This diversification aligns with Herc’s ProSolutions® model, which tailors equipment to niche industries, reducing reliance on cyclical demand.

Analysts estimate the acquisition could lift Herc’s 2025 revenue by 10%, with adjusted EBITDA rising to $1.65 billion—a 5% increase over 2024. The transaction’s accretive nature, coupled with Herc’s balance sheet strength, positions it to outpace peers in an industry where scale increasingly matters.

Sector Tailwinds: Infrastructure Spending and the Megaproject Boom

The U.S. infrastructure market is entering a golden age, fueled by the 2021 Bipartisan Infrastructure Law ($550 billion) and state-level projects. Herc is uniquely positioned to benefit:
- National Account Growth: Herc’s focus on large-scale clients—e.g., utilities, governments, and contractors—delivers steady demand. In 2024, mega-projects drove 9.3% volume growth in equipment rentals.
- Equipment Utilization: Herc’s 40.9% dollar utilization in 2024 remains robust, suggesting efficient fleet management and pricing power.

Why Act Now? The Bull Case for HRI

1. Dividend Safety: With a payout ratio of <50% of adjusted earnings, Herc’s dividend is conservative and scalable. The 2025 hike to $2.80 annualized reflects confidence in its $3.6 billion revenue base and $1.5 billion+ EBITDA runway.
2. Acquisition Synergies: The H&E deal adds $74 million/year in synergies—equivalent to a 2% boost to adjusted EBITDA—while expanding Herc’s geographic reach and client base.
3. Debt Under Control: Despite $4.0 billion in net debt, Herc’s liquidity and 2.5x leverage ratio are sustainable. The recent $2.75 billion senior notes offering locked in low-interest debt, shielding it from rising rates.
4. Valuation Advantage: At 11x 2025E EBITDA, Herc trades at a discount to peers (United Rentals trades at ~13x), offering upside potential as synergies materialize.

Risks? Yes—but Manageable

• Interest Rate Pressures: Higher borrowing costs have increased interest expenses to $260 million. However, Herc’s fixed-rate debt mix (now 80%) mitigates this risk.
• Integration Challenges: Merging H&E’s operations could strain resources. Yet Herc’s track record—smooth integration of prior acquisitions—gives confidence.

Conclusion: A High-Conviction Income Play

Herc Holdings is a dividend stalwart with a clear path to growth. Its 2025 dividend hike, accretive acquisitions, and infrastructure-driven tailwinds create a compelling case for investors seeking income, capital appreciation, and stability.

For income-focused investors, the $2.80 annual dividend offers a 3.2% yield at current prices—well above the S&P 500’s average—and the potential for further hikes. For growth investors, the H&E acquisition and infrastructure boom position Herc to outperform in 2025 and beyond.

Action to Take: Consider initiating a position in HRI now, with a 12–18 month horizon, to capture dividend growth and accretive synergies. The stock’s valuation, financial resilience, and strategic execution make it a must-watch name in the equipment rental sector.