Dividend stocks have long been popular with investors for the steady streams of passive income they provide. But not all dividend-paying companies are created equal when it comes to long-term investment potential. The savvy investor knows to look beyond the lure of a high current yield and focus on the characteristics that indicate a company will be able to deliver sustainable returns over the long term.
What should buy-and-hold investors look for in a dividend stock? Three key factors stand out. First, a conservative payout ratio of less than 50%, indicating that the company isn’t stretching its finances to maintain its dividend. Second, a track record of annual payout increases spanning decades. Finally, a robust economic moat that protects the company’s profitability.
While high yields may catch your attention, they are often red flags that portend the possibility of future dividend cuts. These events can send stock prices plummeting and undermine your returns for years to come. By prioritizing dividend sustainability and growth over current yields, investors can build a portfolio of reliable income-producing stocks that will stand the test of time.
Now let’s take a look at six notable dividend growth stocks that embody these crucial characteristics.
Target stands out as a dividend giant
Retail giant Goal (NYSE: TGT) boasts an impressive 53-year streak of consecutive dividend increases. The current yield of 2.9% is attractive, supported by a reasonable payout ratio of 45%. The company’s five-year annualized dividend growth of 10.4% demonstrates its commitment to rewarding shareholders.
Target’s forward price-to-earnings (P/E) ratio of 14.5 for 2026 suggests the stock may be fairly valued compared to the broader market. S&P 500After all, Target is trading at around 17.3 times estimated 2026 earnings, according to some optimistic forecasts. Target’s economic moat comes from its strong brand recognition, extensive retail network and efficient supply chain management.
Parker-Hannifin achieves dividend growth
Parker-Hannifin (NYSE: PH)a leader in motion and control technologies, offers a compelling dividend growth story, having increased its payouts for 68 consecutive years.
While the current yield of 1.1% may seem modest, Parker-Hannifin’s low payout ratio of 27.8% and impressive five-year annualized dividend growth of 13.2% suggest there is plenty of room for increases going forward.
The company’s forward 2026 price-to-earnings ratio of 20.2 indicates that investors are currently paying a premium for earnings compared to the average of the S&P 500. Parker-Hannifin’s economic moat is built on its technological expertise, diverse product portfolio and strong relationships with original equipment manufacturers.
WW Grainger consistently pays dividends
WW Grainger (NYSE: GWW)a leading distributor of maintenance, repair and operational products, has increased its dividends for 53 consecutive years. The current yield of approximately 0.8% is supported by a conservative payout ratio of 20.9%. The five-year annualized dividend growth rate of 6% shows steady, sustainable growth.
Grainger’s projected 2026 price-to-earnings ratio of 21.3 suggests the stock trades at a premium to the S&P 500. The company’s economic moat is derived from its extensive distribution network, economies of scale and strong customer relationships in a fragmented market.
Tennant cleans up with dividend growth
Tenant (NYSE: TNC)a global leader in cleaning equipment and solutions, offers an attractive dividend profile. The company has increased its payouts for 52 consecutive years and its current yield of around 1.2% is supported by a very conservative payout ratio of 19%. Its five-year annualized dividend growth of 4.9% suggests steady increases.
Tennant’s forward price-to-earnings ratio of 14 in 2026 may indicate that the stock is relatively affordable compared to expected earnings and the benchmark S&P 500. Its economic moat is rooted in innovative product development, strong brand reputation and global service network.
Walmart flexes its dividend muscles
Walmart (NYSE: WMT)The world’s largest retailer has established itself as a dividend giant with 51 years of consecutive increases. The company’s current yield of 1.1% is supported by a payout ratio of just 41.4%. While Walmart’s five-year annualized dividend growth of 1.5% is more modest than some retail peers, its consistent increases and strong market position make it a solid choice.
Wall Street’s forward price-to-earnings ratio of 28 for 2026 suggests the stock trades at a premium to the S&P 500. Walmart’s economic moat is built on its massive scale, efficient supply chain and growing e-commerce capabilities.
S&P Global scores high on dividend growth
S&P Worldwide (NYSE: SPGI)a leading provider of credit ratings, benchmarks and analytics, rounds out our list with an impressive dividend record, having increased its payouts for 51 consecutive years. S&P Global’s current yield of 0.7% may seem low, but its conservative payout ratio of 34.3% and five-year annualized dividend growth of 6.3% suggest there’s potential for further increases.
With a forward price-to-earnings ratio of 28 in 2026, the stock is more expensive than the S&P 500. S&P Global’s economic moat comes from its strong reputation, critical role in financial markets and high switching costs for customers.
Building a passive income portfolio
These six companies demonstrate the key characteristics of a company positioned to deliver sustainable dividend growth: a long track record of increases, conservative payout ratios, and strong competitive positions. While each stock offers unique advantages, their true strength as an investment lies in combining them in a diversified portfolio.
By spreading your investments across different sectors and companies, you can reduce risk while improving your overall dividend yield and growth potential. That said, investors will likely want to choose just one of the two major retailers on this list, Target and Walmart, for diversification purposes.
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George Budwell has positions in Target. The Motley Fool has positions in and recommends S&P Global, Target and Walmart. The Motley Fool recommends Tennant. The Motley Fool has a disclosure policy.
6 Dividend Growth Stocks That Can Generate Passive Income for a Lifetime was originally published by The Motley Fool
