1 Current and 1 Future Dividend Aristocrat to Buy and Hold Forever

While most apparel stocks make for better buy-low and sell-high candidates than genuine buy-and-hold investments, two businesses stand out as the exception: Nike (NKE -1.26%) and Cintas (CTAS -0.17%).

Despite operating in wildly different segments of the broader clothing industry, the two behemoths have smashed the S&P 500 index's returns over the last three decades.

NKE Total Return Price data by YCharts

So what exactly makes these two stocks different than the rest of their apparel peers?

Let's take a look.

Image source: Getty Images.

Nike

Founded by self-proclaimed "Shoe Dog" Phil Knight and business partner Bill Bowerman in 1964, Nike has become the seventh most popular brand in the world, according to Comparably. Specifically, Nike is the No. 1 brand in the fashion and beauty sector, easily outpacing peers Adidas, Under Armour, and VF Corporation's Vans brand.

Best yet for investors, Nike's brand looks as strong as ever, ranking in the 10th spot on Comparably's list of top brands for Gen Z in 2022. Traditionally, branding is an incredibly fickle trait for companies to maintain in the apparel industry, as trends (and fads) move in and out of fashion at increasingly high speeds.

However, Nike has seemingly bucked this trend, holding relevance across younger generations. Consider the cult-like following Jordan shoes have, despite the NBA star turning 60 next year and having been removed from the game for nearly two decades.

Thanks to the incredible brand power, the company's shares have risen more than 70 times in value over the last three decades, consistently testing new all-time highs.

More recently, however, Nike has been reinventing itself as a digitally focused, direct-to-consumer (DTC) operation, which could pay huge dividends over the long run as it develops more robust relationships with its already avid fanbase. 

For example, during the third quarter of 2022, Nike posted year-over-year revenue growth of 5% but saw direct and digital sales grow by 15% and 19%, respectively. Thanks to this growth, digital has grown to account for one-third of sales in North America -- highlighting that its digital growth over the last two years was much more than just a pandemic-driven boost. 

Furthermore, Nike's digital app grew its sales by more than 50% during Q3 and now generates more revenue than Nike.com -- demonstrating that this is not only a digital shift but one to the all-important mobile realm. This growth is pivotal to investors as it shows Nike's strength in the mobile app space, which is becoming increasingly valuable for driving customer engagement.

Most importantly regarding this transformation is that Nike is doing this while generating higher returns on invested capital (ROIC).

NKE Return on Invested Capital (5y Median) data by YCharts

Return on invested capital compares a company's profitability versus the debt and equity needed to generate that net income, with a positive percentage showing a growing company. Considering that the median ROIC in the S&P 500 index is 11%, Nike's five-year mark of 26% is fantastic. 

Traditionally, stocks with high and rising ROICs outperform the broader market, making Nike's ongoing digital and DTC transformation even more appealing for investors focused on the long game.

Cintas

While calling Cintas a genuine apparel company is a bit of a stretch, it is home to a uniform rental service that makes up the most significant portion of its sales. Helping more than 1 million businesses get "ready for the workday," Cintas offers everything from these uniforms to COVID-19 test kits, restroom supplies, fire extinguishers, and personal protective equipment.

Despite seeming like an unexciting operation, Cintas has posted stock returns that are anything but -- rising 1,000% in just the last decade.

Perhaps most incredibly, Cintas not only survived the onset of COVID-19 -- it thrived in it.

CTAS Free Cash Flow data by YCharts

From 2019 to 2021, earnings per share (EPS) and free cash flow steadily increased despite lockdowns that hampered the broader economy.

This fact is important to investors today, with inflation rising to 7% in the United States and forcing us to consider just how recession-proof our favorite holdings may be.

Heading into its third-quarter earnings report, Cintas faced myriad worries: inflation, escalating political tension, rising fuel prices, labor shortages, and a travel and hospitality industry that has not yet returned to full strength. However, the company went on to post 10% and 14% revenue and EPS growth, respectively, for the quarter -- showing that even with two of its main verticals -- travel and hospitality -- still struggling, it could be counted on for growth.

Furthermore, like Nike, Cintas owns a strong and growing ROIC, which clocked in at 20% as of its most recent quarter.

Thanks to this growing ROIC, the recession-proof nature of its operations, and its history as a Dividend Aristocrat, Cintas looks to be an excellent option to consider holding for the long term.

Dynamic dividend duo

Data source: Yahoo! Finance. Maximum dividend potential = dividend yield/payout ratio. 

While the soon-to-be (Nike) and current (Cintas) Dividend Aristocrats pay 0.9% dividends, Cintas holds a more robust dividend growth rate of 22% annually over the last five years despite having already bumped its dividend for 38 years straight.

Ultimately, both businesses have a maximum dividend potential of nearly 3%, highlighting their promising combination of a reasonable dividend yield and a low payout ratio. So whether it is Nike's brand power or Cintas' ability to weather any economic storm, these are two great dividend growers to consider in today's volatile times.