5 Dividend Growth Stocks to Buy and Hold Forever

Dividend growth stocks have a long history of outperforming most other asset classes. Companies that consistently increase their dividends generally have exceptional free cash flow, strong balance sheets, and have above-average earnings growth. On top of all this, regular dividend increases can create a snowball effect for long-term investors, increasing returns over time when the dividend is reinvested.

Which dividend growth stocks are being reviewed as top buys for long-term investors? The following five top dividend payers have exceptional dividend growth rates and excellent fundamentals. Here’s a rundown of their most compelling attributes and why they could make an outstanding addition to a well-rounded portfolio.

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1. Apple

Apple (AAPL -0.42%)the tech giant known for its innovative products like the iPhone and Mac computers has become a fantastic dividend growth stock in recent years. The company’s strong brand, loyal customer base and expanding service segment provide a solid foundation for future growth.

Apple’s current yield of 0.45% may seem low, but its three-year dividend growth rate of 2.81% and low payout ratio of 14.7% indicate significant room for future growth. The company’s robust operating cash flow of $110.5 billion in 2023 underscores its ability to fund dividend growth while investing in its diverse range of businesses.

Apple’s combination of a strong balance sheet, consistent free cash flow generation, and low payout ratio make it an attractive option for dividend growth investors. The company’s continued hardware innovation and service expansion provide multiple avenues for future growth, supporting the potential for sustained dividend growth.

2. ExxonMobil

ExxonMobil (XOM 0.70%)one of the world’s largest integrated oil and gas companies, has a long history of dividend payouts and increases. The company’s diverse operations along the energy value chain provide stability and cash flow to support its dividend policy.

ExxonMobil offers a yield of 3.2% and a three-year dividend growth rate of 2.58%, offering an attractive mix of current income and growth. The payout ratio of 44.9% and operating cash flow of $55.3 billion in 2023 indicate that the dividend is well covered by current operations.

ExxonMobil’s strong position in the energy sector, along with its focus on reducing costs and improving efficiency, makes it a compelling choice for dividend growth investors. The company’s investments in low-carbon solutions also position it well for the ongoing energy transition to combat climate change.

3. Medtronic

Medtronic (MDT 0.31%)global leader in medical technology, offers a wide range of products and therapies. The company’s focus on innovation and expanding its presence in emerging markets offers several avenues for long-term growth.

Medtronic offers a consistent yield of 3.43% with a three-year dividend growth rate of 0.97%. That said, the 100% payout rate raises some concerns about the registry’s sustainability. However, the company’s substantial operating cash flow of $6.04 billion in 2023 provides some reassurance about the sustainability of its quarterly payouts.

Medtronic’s strong market position in various medical technology segments and focus on research and development support its long-term growth prospects. The company’s commitment to its dividend, despite recent challenges, makes it an interesting option for income-focused investors.

4. Johnson & Johnson

Johnson & Johnson (JNJ -0.04%)a diversified healthcare company, operates in the high-growth pharmaceutical and medical device business. The company’s broad portfolio and strong brand recognition provide stability and a wide range of growth opportunities.

J&J offers a yield of 3.12% and a three-year dividend growth rate of 3.1%, offering a balanced mix of current income and growth. The payout ratio of 72.7% is manageable for a diversified healthcare company. After all, J&J has accumulated operating cash flow of $22.8 billion in 2023.

J&J’s diverse business model, strong financial position and consistent dividend growth make it an attractive option for conservative dividend growth investors. The company’s focus on innovation and value-creating strategic acquisitions should support future growth and further dividend increases.

5. Coca-Cola

Coca cola (K.O -0.16%)global leader in the beverage industry, boasts a portfolio of over 200 brands. The company’s strong distribution network and marketing capabilities provide a noteworthy competitive advantage.

Coca-Cola yields 2.83% with a three-year dividend growth rate of 3.29%. The 76.8% payout ratio is on the high side, but the dividend is supported by more than $11.5 billion in operating cash flow on an annual basis.

Coca-Cola’s strong portfolio of brands, global presence and focus on adapting to changing consumer preferences position it well for future growth. The company’s consistent record of dividend growth and continuous efforts to improve efficiency make it an attractive choice for dividend-focused investors.

Key recommendations

These five dividend growth stocks offer an attractive combination of current yield, growth potential and financial stability. In addition, they represent diverse sectors, a feature that could help diversify the portfolio. Best of all, these top dividend producers are proven escalators thanks to their top dividend programs.