Dividend stocks are among the top assets long-term investors want to consider when it comes to building a stable income-generating portfolio over time. Of course, bonds and other fixed income securities ought to play a certain role at a certain stage in one’s life. But being able to benefit from potential capital appreciation upside (as well as dividend growth over time) is a key reason why many investors continue to prefer dividend stocks over bonds every day of the week.

The question is, with so many dividend stocks out there, how to pick and choose the best ones? Personally, I think dividend growth is among the most important factors to consider.

Companies that not only pay out reasonable dividend yields (relative to their cash flow growth profiles) but also raise their dividend distributions each and every year are superior to companies that simply hold their dividends steady, or cut their dividends at the first signs of trouble. Indeed, finding stable and consistent dividend growers is easier said than done, but historical precedence usually comes into play when trying to determine whether a company will deliver on future dividends, and grow their distributions over time.

These three stocks certainly fit the profile of the dividend growers I think are worth considering for long-term investors looking for meaningful passive income in retirement.

Key Points About This Article:

• Companies that pay meaningful dividends are great for portfolios, but companies that raise their distributions consistently are even better.
• These three companies are among the top dividend growth stocks I think long-term investors may want to consider right now.
• If you’re looking for some stocks with huge potential, make sure to grab a free copy of our brand-new “The Next NVIDIA” report. It features a software stock we’re confident has 10X potential.

Fortis (FTS)

A lesser-known utilities company I’ve been pounding the table on for a long time is Fortis (NYSE:FTS). The Canada-based utilities giant continues to provide strong cash flow growth, and pass on a significant amount of its earnings to shareholders each and every year.

To Fortis’ credit, the company just became a Dividend King, after reaching the 50 year dividend hike milestone. This has been bolstered by impressive capital acquisition and asset growth, with Fortis’ portfolio of income-producing assets growing from $390 million in 1987 to $69 billion through strategic expansion. In Q2 2024, the company reported EPS of $0.67 (easily surpassing expectations of $0.47), highlighting the stability of its regulated utility operations.

For those wondering how high Fortis’ dividend can climb moving forward, the company’s management team has pledged between 4% and 6% annual dividend hikes through 2028. After that, it’s anyone’s guess how high Fortis will ultimately grow its distribution. But with a rte base that’s set to grow from $37 billion to $49.4 billion by 2028, there does appear to be ample room for additional hikes down the road, so long as the utility business stays the same (and I don’t see why it won’t).

Johnson & Johnson (JNJ)

Johnson & Johnson (NYSE:JNJ) is among the top pharmaceutical giants that’s been subject to plenty of negative headlines of late. The Dividend King has recently faced risks to its dividend growth due to costly legal battles, especially talc lawsuits. And it’s widely expected that ongoing legal issues and various settlements could hurt the company’s cash position, potentially driving the company’s management team to consider foregoing the company’s rather impressive dividend hike streak of 62 consecutive years. We’ll see, but a dividend yield of nearly 5% does suggest something is up in terms of the market’s pricing of the company’s dividend cut risk. 

That’s not to say Johnson & Johnson has underperformed relative to its peers – the company’s stock price is up roughly 4% over the past month. And with the company’s Q3 2024 earnings on the table (JNJ is expected to report $2.19 of EPS, down 17.7% from last year), the bar has clearly been set low by the overall market.

It’s true that JNJ stock does have some potential headwinds on the horizon. However, this is a blue-chip pharma giant with a portfolio of brands that provide stability and global growth potential unlike most companies in the market. Those seeking stability and a higher yield may want to consider JNJ stock at current levels as a core portfolio holding.

Coca-Cola (KO)

Coca-Cola’s (NYSE:KO) iconic brand has clearly created an iron-clad moat around its business. As Warren Buffett has progressed in his career, his focus on the quality of his investments versus the fundamentals has led him to seek out companies with durable competitive advantages (or moats) that can grow into perpetuity. Coca-Cola is one such long-term holding which Buffett just doesn’t seem to see the reason to trim (and he’s been doing quite a bit of trimming of late).

Part of the company’s allure to long-term investors is its dividend growth trajectory, which has remained intact in recent years. Now, KO stock does come with a price-earnings ratio of 24-times, which is higher than its peers. But the core brand value, and the overall stability of its vertically integrated business model, provides the kind of steadiness millions of investors are after.

It should be no surprise then that the stock provides a sub-3% dividend yield. Despite Q2 revenue growing only 3%, investors appear to have liked Coca-Cola’s recent revenue guide higher, and the company’s successful price hikes do suggest the world-class beverage brand still has pricing power in this market. For those concerned about inflation (or even deflation) moving forward, this is a top stock I think is worth holding.

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