3 Dividend Growth Stocks That Can Deliver a Lifetime of Passive Income

The allure of high-yield dividend stocks often tempts income investors. Yet the most successful dividend portfolios aren't built on eye-catching yields. They're constructed with companies that reliably grow their payouts year after year, creating compounding streams of passive income that can last a lifetime.

Growing dividends signal more than just rising payouts. They represent fundamental business strength, as companies must increase cash flow to support these distributions. The most successful dividend stocks combine long histories of rising payouts with strong competitive positions and room for continued growth.

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These three companies have proven their abilities to reward shareholders through multiple economic cycles. Each combines decades of rising payouts with strong market positions and sustainable payout ratios. Below, I'll explore why these three dividend powerhouses merit consideration for long-term passive-income portfolios.

The evolving face of American retail

From its Minneapolis roots, Target (NYSE: TGT) has transformed into a retail powerhouse that seamlessly blends digital convenience with experiential shopping. The company's omnichannel strategy and exclusive brand partnerships drive customer loyalty in an increasingly competitive landscape.

Target's streak of dividend raises dates back 53 years, with distributions growing 8.86% annually over the past 10 years. What's important to understand is that a long-term dividend-growth rate above 6% is generally considered elite for a large-cap company. Target has consistently exceeded this threshold over the prior 10 years, making it one of the best dividend-growth stocks on the planet.

Target shares trade at 14.2 times forward earnings, well below the 41.9 average of its peer group. Its 45.4% payout ratio provides ample coverage for the current 2.87% yield, while leaving room for future increases. With its compelling valuation, established dividend track record, and strong brand presence, Target offers investors a rare combination of current income and growth potential.

Engineering tomorrow's solutions

Parker-Hannifin (NYSE: PH) plays a crucial yet often overlooked role in modern industry. The company's motion and control technologies enable everything from efficient manufacturing to aerospace innovation.

This mission-critical position has supported 68 straight years of dividend growth, with an 11.9% average annual increase over the past 10 years. As a result of its double-digit annual raises and nearly seven-decade-long history of dividend increases, Parker-Hannifin offers shareholders a truly elite shareholder rewards program.

Digging deeper, Parker-Hannifin's conservative 28% payout ratio and annualized 1.02% yield signal significant room for continued dividend expansion. Moreover, the company's essential role in industrial automation and aerospace creates lasting competitive advantages that ensure the long-term sustainability of its dividend.

All in all, Parker-Hannifin stands out as a compelling choice for investors seeking exposure to industrial innovation alongside reliable dividend growth.

Powering industrial efficiency

W.W. Grainger (NYSE: GWW) has built an enviable position in industrial distribution through decades of investment in logistics infrastructure and digital capabilities. The company's vast product selection and next-day delivery network create sticky customer relationships across diverse industries. This competitive advantage underlies 53 years of rising dividends.

W.W. Grainger's conservative 21.2% payout ratio supports its modest 0.77% yield. This financial discipline has enabled dividend growth of 6.75% annually over the past 10 years. Grainger's dominant market position and operational excellence make it an ideal choice for investors seeking dividend growth powered by a wide economic moat.

The power of rising payouts

These three companies demonstrate how strong business fundamentals and financial discipline enable sustainable dividend growth. Target provides an attractive current yield of 2.87%, while Parker-Hannifin and Grainger offer lower initial yields but substantial room for expansion.

These proven dividend growers offer compelling ways to combine current income with rising future payouts for investors seeking to build reliable passive income that can last a lifetime.

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George Budwell has positions in Target. The Motley Fool has positions in and recommends Target. The Motley Fool has a disclosure policy.