3 Incredible Dividend Growth Stocks That Can Provide a Lifetime of Passive Income

Passive income is crucial to maintaining your retirement lifestyle, especially given the uncertain future of Social Security benefits. The Office of Retirement and Disability Policy, part of the Social Security Administration, projects that by 2037, the program’s trust fund reserves could be depleted, potentially reducing scheduled benefits to 76 percent of their current levels. This looming challenge underscores the importance of building alternative income streams for retirees.

As a result, many investors are turning to dividend stocks as the cornerstone of their retirement income strategy. However, not all dividend-paying companies offer the same potential for stable, growing income.

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The most attractive dividend stocks have three key characteristics: payout ratios below 50%, dividend growth rates exceeding 6%, and capital appreciation that keeps pace with the broader market. These traits often point to thriving businesses with strong cash flows and shareholder-friendly management teams — exactly the type of companies that can provide a reliable and growing income stream for retirees.

Here’s an overview of three Tier 1 dividend growth stocks that check those boxes, making them prime contenders for a passive income portfolio with a long-term focus.

1. Lowe’s: The home improvement giant that keeps on giving

Lowe’s Companies (LOW 0.38%) is a leading home improvement retailer that operates more than 1,700 stores in North America. The company offers a wide range of products for construction, maintenance and remodeling, catering to both DIYers and professional contractors. Lowe’s business model benefits from continued demand for home improvement and strong brand recognition.

It has a 10-year dividend growth rate of 15.2%, one of the highest among large-cap stocks. With a payout ratio of just 36.7%, the company maintains a significant margin of safety for income investors, ensuring the sustainability of its dividend even in the face of economic shocks.

This buffer dramatically reduces the risk of dividend cuts or suspensions, allowing investors to benefit from uninterrupted compounding. Lowe’s has also aggressively reduced its share count by 41% over the past decade, effectively boosting earnings per share and dividend growth.

The stock’s forward price-to-earnings (P/E) ratio of 20.4 compares favorably with the broader market of S&P 500which trades at 22.5 times estimated 2025 earnings. That lower valuation could amplify returns in a market tilt toward value.

Finally, Lowe’s dividend yield of 1.89% is above average for its peer group, a feature that enhances its ability to build an income snowball when held over a 10 to 20 time period year old.

2. Lockheed Martin: A defensive play with steady returns

Lockheed Martin (LMT 1.75%) is a global aerospace and defense company specializing in the design, development and production of advanced technology systems. The company’s diverse portfolio includes military aircraft, missile systems and space technologies. Lockheed Martin’s core business model revolves around long-term government contracts, providing a stable revenue stream and visibility into future revenue.

The company has a solid 7.7% 10-year dividend growth rate, which is unusually generous for a company of Lockheed’s size. With a payout ratio of 45.1%, Lockheed Martin offers potential income investors a robust safety net, making it highly unlikely that the company will cut or suspend its dividend even during severe economic downturns. This reliability ensures consistent compounding for long-term investors.

Lockheed’s commitment to shareholder returns is also evident in its 22% reduction in share count over the past decade, effectively boosting earnings per share and boosting dividend growth.

The stock’s forward P/E of 19.9 is slightly below that of the broader market. However, Lockheed Martin’s dividend yield of 2.22% is substantially higher than the S&P 500 average of 1.35%. This top-tier dividend growth rate with higher yield and low payout ratio make the stock attractive to investors looking to create an ever-growing passive income stream.

3. Target: Lip eye for dividend growth

Aim (TGT -0.46%) is a major retailer that operates a chain of discount stores in the United States. The company offers various merchandise, including clothing, electronics, and food products. Target’s business model focuses on providing a superior shopping experience through competitive pricing, trendy product offerings and a strong omnichannel presence.

Target is a dividend growth powerhouse with an incredible 10% dividend growth rate over 10 years. The retailer’s 45.4% payout ratio also provides a sizeable cushion for income seekers, significantly reducing the risk of a dividend cut even in a challenging economy.

Over the past decade, Target has reduced its share count by 27.7%, increasing shareholder value and supporting aggressive dividend growth. The stock’s forward price of 16.3 is a significant discount compared to the S&P 500.

Target’s dividend yield of 2.96% is also more than double the S&P 500 average of 1.35%, providing a compelling income proposition for dividend-focused investors. This relatively high yield, coupled with Target’s amazing dividend growth rate and modest payout ratio, make it an ideal choice for a passive income portfolio.

The best picks for a passive income portfolio

These three dividend growth stocks — Lowe’s, Lockheed Martin and Target — offer investors a strong combination of current income, long-term sustainability and above-average dividend growth. As a bonus, all three dividend payers beat the benchmark S&P 500 over the past 10 years in terms of total returns (including dividends and assuming reinvestment), showing the strength of the dividend growth strategy and combined returns.

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These elite dividend producers thus look like top picks for a long-term focused passive income portfolio.