3 Dividend Growth Stocks Perfect for Long-Term Investors

Dividend growth stocks are ideal for long-term investors, as rising dividends enhance yield over time, leading to higher income. These companies typically maintain stable cash flows, profitability, and strong management, ensuring sustainability.

Hence, income investors may consider reliable dividend growth stocks like Johnson & Johnson (JNJ), PepsiCo, Inc. (PEP), and Target Corporation (TGT) for long-term wealth building.

Dividend growth stocks offer both income and long-term value growth, boosting total returns. Recently, with the Fed holding rates at 4.25% - 4.50% and no imminent cuts, a stable economy favors strong dividend growers. Moreover, as inflation remains slightly elevated but is expected to ease, dividend stocks can provide steady returns, especially if rate cuts materialize in late 2025.

Meanwhile, historical data shows that dividend growth stocks outperform high-yield stocks in both returns and risk-adjusted performance. Companies with consistent dividend increases exhibit strong governance and financial discipline, making them dependable long-term investments. Plus, reinvesting these growing dividends accelerates wealth accumulation, enhancing overall returns.

Given these favorable trends, let’s now examine the fundamentals of the three top dividend growth stocks.

Johnson & Johnson (JNJ)

JNJ researches, develops, manufactures, and sells various products in the healthcare field worldwide. It operates through two segments: Innovative Medicine, and MedTech.

On January 21, 2025, JNJ announced that the European Commission approved LAZCLUZE (lazertinib) in combination with RYBREVANT (amivantamab) for the first-line treatment of advanced EGFR-mutated non-small cell lung cancer. The approval is based on Phase 3 MARIPOSA study results showing a significant overall survival improvement compared to the current standard, osimertinib.

On the same date, JNJ announced that the U.S. FDA approved SPRAVATO (esketamine) as the first and only monotherapy for adults with treatment-resistant depression. This approval follows positive clinical trial results, showing rapid and superior symptom improvement compared to placebo.

In terms of the trailing-12-month EBITDA margin, JNJ’s 32.09% is 462% higher than the 5.71% industry average. Its 5.48% trailing-12-month Capex / Sales is 75.9% higher than the 3.12% industry average. Likewise, its 0.51x trailing-12-month asset turnover ratio is 22.1% higher than the industry average of 0.42x.

JNJ has paid dividends for 62 consecutive years.  Its annual dividend is $4.96, which translates to a yield of 3.24% at the current share price. Its four-year average dividend yield is 2.76%. Moreover, the company’s dividend payouts have increased at a CAGR of 5.5% over the past five years.

For the fourth quarter that ended December 31, 2024, JNJ’s reported sales increased 5.3% year-over-year to $22.52 billion. Similarly, its gross profit increased 5.3% from the year-ago value to $15.39 billion. Moreover, the company’s adjusted net earnings came in at $4.95 billion and $2.04 per share, respectively.

Street expects JNJ’s revenue for the quarter ending March 31, 2025, to increase 1.3% year-over-year to $21.67 billion. Its EPS for the quarter ending September 30, 2025, is expected to increase 12.2% year-over-year to $2.71. It surpassed Street EPS estimates in each of the trailing four quarters. JNJ’s stock has gained 6.7% over the past month to close the last trading session at $152.87.

JNJ’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

JNJ has a B grade for Growth, Value, Stability, and Quality. It is ranked #3 out of the 148 stocks in the Medical – Pharmaceuticals industry.

Click here to see the additional ratings for JNJ (Sentiment and Momentum).

PepsiCo, Inc. (PEP)

PEP manufactures, markets, distributes, and sells beverages and convenient foods worldwide. It has seven operating segments: Frito-Lay North America; Quaker Foods North America; PepsiCo Beverages North America; Latin America; Europe; Africa, Middle East, and South Asia; Asia Pacific, Australia, and New Zealand; and China Region.

On January 17, 2025, PEP completed its $1.20 billion acquisition of Siete Foods, expanding its food portfolio with healthier, simple ingredient options. The acquisition supports PEP’s commitment to offering nutritious choices and reaching a broader consumer base.

On November 22, 2024, PEP announced it will acquire the remaining 50% of Sabra Dipping Company and Obela, becoming the sole owner of these brands. This acquisition will help expand PEP’s portfolio in the U.S. and Canada, catering to the increasing demand for nutritious, simple foods.

In terms of the trailing-12-month EBIT margin, PEP’s 15.21% is 56.1% higher than the 9.74% industry average. Likewise, its 18.40% trailing-12-month EBITDA margin is 40.8% higher than the 13.07% industry average. Its 0.92x trailing-12-month asset turnover ratio is 5.5% higher than the 0.87x industry average.

PEP has been paying dividends to its shareholders for the past 52 years. Its annualized dividend of $5.42 per share translates to a dividend yield of 3.57% on the current share price. Its four-year average yield is 2.77%. Over the past three and five years, PEP’s dividend payments have grown at CAGRs of 7.9% and 7%, respectively.

During the fiscal third quarter that ended September 7, 2024, PEP reported a total net revenue of $23.32 billion, with an operating profit of $3.87 billion. Additionally, the company’s non-GAAP net income attributable to PEP was $3.19 billion, or $2.31 per share, marking increases of 2.6% and 2.7% from the prior year’s period, respectively.

For the quarter ended December 31, 2024, PEP’s EPS and revenue are expected to increase 9.2% and 0.2% year-over-year to $1.94 and $27.89 billion, respectively. It surpassed the EPS estimates in each of the trailing four quarters. Over the past month, the stock has gained marginally to close the last trading session at $151.90.

PEP’s bright prospects are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.

The stock has an A grade for Quality and a B for Growth. PEP is ranked #11 out of 31 stocks in the B-rated Beverages industry.

To check POWR Ratings of PEP for Value, Momentum, Stability, and Sentiment, click here.

Target Corporation (TGT)

TGT operates as a general merchandise retailer in the United States. It offers apparel for women, men, boys, girls, toddlers, infants, and newborns, as well as jewellery, accessories, and shoes; beauty and personal care, baby gear, cleaning, paper products, and pet supplies.

On January 15, 2025, TGT announced a quarterly dividend of $1.12 per share, payable on March 1, 2025, to shareholders of record by February 12, 2025.

On January 9, 2025, TGT announced plans to expand its wellness offerings by introducing over 2,000 new items, including 600 exclusive products. The expansion spans multiple categories such as beauty, nutrition, and wellness tech, with over half of the new items priced under $10.

In terms of the trailing-12-month Return on Common Equity, TGT’s 32.37% is 204.1% higher than the 10.64% industry average. Its 11.50% trailing-12-month Return on Total Capital is 60.7% higher than the 7.16% industry average. Similarly, its 1.87x trailing-12-month asset turnover ratio is 115.7% higher than the industry average of 0.87x.

TGT’s annualized dividend of $1.10 per share translates to a dividend yield of 2.99% on the current share price. Its four-year average yield is 3.10%. Its dividend payouts have increased at a CAGR of 12.5% over the past three years. Also, TGT has paid dividends for 56 consecutive years.

In the third quarter, which ended on November 2, 2024, TGT's total revenue rose by 1.1% year-over-year to $25.67 billion, and its operating income was $1.17 billion. Also, the company’s net earnings and adjusted EPS were $854 million and $1.85, respectively.

Analysts expect TGT's EPS for the quarter ending April 30, 2025, to increase 1.3% year-over-year to $2.06. Its revenue for the same quarter is expected to grow 2.5% year-over-year to $25.15 billion. TGT’s stock has gained 4% over the past month to close the last trading session at $140.44.

TGT’s POWR Ratings reflect its outlook. It has an overall B rating, translating to a Buy. TGT also has a B grade for Momentum, Value, and Quality. It is ranked #20 out of 35 stocks in the A-rated Grocery/Big Box Retailers industry.

To see additional POWR Ratings for Growth, Stability, and Sentiment, click here.

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JNJ shares were trading at $151.74 per share on Monday afternoon, down $0.41 (-0.27%). Year-to-date, JNJ has gained 4.92%, versus a 2.06% rise in the benchmark S&P 500 index during the same period.

Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.

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