There are few better ways to make money on Wall Street than buying dividend stocks. Decade after decade, income-generating stocks have outperformed those that do not share their success with investors.

For the 50-year period between 1973 and 2023, Hartford Funds and Ned Davis Research found dividend stocks returned 9.17% annually for shareholders while non-payers returned a more mundane 4.27% annually. 

But even better for investors, stocks that initiated a dividend and then raised the payout performed even better, returning 10.19% annually, and did so with lower risk. So don’t chase yield when buying dividend stocks. Rather seek out dividend growth stocks as the best ones to buy and hold forever.

The three dividend stars below have some of the best records of rewarding shareholders with sustainable payouts that have increased at double-digit rates for a decade or more.

Key Points About This Article:

• Dividend stocks have proved to be an investor’s best friend as they offer market-beating returns, especially when owned for decades. 
• Even better are dividend stocks that continuously increase their payouts over time as they outperform all other classes of stock with lower risk.
• Sit back and let dividends do the heavy lifting for a simple, steady path to serious wealth creation over time. Grab a free copy of “2 Legendary High-Yield Dividend Stocks“ now.

Costco (COST)

Warehouse club Costco (NASDAQ:COST) is the type of dividend stock investors who chase yield overlook. The retailer’s payout yields a seemingly paltry 0.6% annually, and while 2% or more would be nice, ignoring its dividend is a mistake.

Costco has grown its payout at a 13% compounded annual rate for at least the last 10 years, but since it has grown its free cash flow (FCF) at a better than 17% CAGR, the dividend is well supported. FCF is the money left over after a company has paid all of its bills and it can use those funds to invest in the business, pay down debt, buyback stock, or pay a dividend. Costco’s FCF payout ratio — or the amount of its cash profits it pays out as dividends — is a low 18%, meaning there is plenty of room for future growth.

The retailer’s long history of providing customers with a broad selection of products at discounted prices ensures they will return to Costco again and again.

Domino’s (DPZ)

Pizza shop Domino’s (NYSE:DPZ) isn’t a stock most income investors think about, but they should. Not only has DPZ stock been an amazing growth story over the past decade, offering total returns of 527%, but it has raised the dividend by an incredible 20% CAGR for the last 10 years. 

The payout yields 1.4% annually and with a payout ratio of 34%, it is well supported and also has plenty of room for further increases. The dividend has grown from $0.80 per share 10 years ago to $6.04 per share today.

Dominos achieved this remarkable success by deploying a strategy known as “fortressing.” It floods a market with stores so that it creates mindshare in potential customers. It may not be as prolific as Starbucks (NASDAQ:SBUX) in putting a coffee shop on just about every corner, but it has allowed sales to grow from $1.8 billion in 2013 to $4.5 billion, a 10% CAGR.

Microsoft (MSFT)

The third dividend stock to buy and hold forever is Microsoft (NASDAQ:MSFT). It is another one that doesn’t receive as much attention because the payout yields 0.7% annually, but like Costco and Domino’s, Microsoft has increased the dividend by double-digit rates for the last 10 years, or 10% annually.

The tech giant’s 33% FCF payout ratio also ensures the dividend is well-supported and offers plenty of growth opportunities. It has grown from $0.79 per share to $3 per share over the 10-year span.

While the Windows operating system is Microsoft’s original claim to fame, it is a much different company today. In particular, it has the third-largest cloud services platform and also the fastest-growing one. Azure revenue grew 33% in fiscal 2024, far outstripping Amazon‘s (NASDAQ:AMZN) AWS and Alphabet‘s (NASDAQ:GOOG)(NASDAQ:GOOGL) Google Cloud. 

The addition of artificial intelligence to Azure and the rest of Microsoft’s suite of products and services could see the tech leader accelerate growth in the years ahead.

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