Through a combination of regular cash payments and share price gains, dividend stocks can deliver big wins for long-term investors. Even a relatively modest initial investment, such as $500, has the potential to generate large returns over time.

But it's still important to back the right dividend stocks to maximize your investment dollars. Within that mold, read on to see why backing these two companies looks like a smart move right now for income-seeking investors.

This cheap telecom stock pays big dividends

Keith Noonan: Verizon Communications (VZ -0.42%) struggled in recent years as rising interest rates and competition in the telecommunications industry increased bearish sentiment surrounding the stock. But investors could come to regret passing on this income-generating giant.

With a dividend yield of roughly 6.9%, Verizon has the fifth-highest yield of any stock in the S&P 500 index. The company also boasts the longest streak of payout growth among U.S.-based telecommunications companies, having increased its payout annually for 17 years running. Investors can look forward to the growth streak continuing.

While Verizon is on track to distribute roughly $11 billion in dividend payments to shareholders this year, the company is on track to generate roughly $18 billion in free cash flow (FCF). The telecom giant's dividend is safely supported, and its current rate of FCF generation also gives the company the flexibility to continue paying down its debt load.

VZ PE Ratio (Forward) Chart

VZ PE Ratio (Forward) data by YCharts. PE Ratio = price-to-earnings ratio.

Investors seeking strong sales and earnings growth probably won't find much to like about the company, but that doesn't mean this relatively mature business can't deliver wins for long-term investors. Trading at less than 8.5 times this year's expected earnings, Verizon stock looks cheaply valued at today's prices.

Home Depot is a passive income investor's dream

Parkev Tatevosian: When looking for a stock I can buy and hold forever, the essential characteristic I seek is a competitive advantage -- a fundamental reason a business is capable of beating back its rivals. Home Depot (HD 1.13%) is one dividend stock that fits my expectations in this category. The type of products the company sells (heavy, bulky, and specialized home improvement items) makes it difficult for outsiders to take meaningful market share.

That has helped Home Depot, a primarily brick-and-mortar retailer, to grow revenue at a compound annual rate of 7.7% in the last decade. More importantly, operating income jumped from $9.2 billion to $24 billion between 2014 and 2023. Even though the stock's 2.6% yield might not look like much to investors seeking huge payouts, Home Depot's strong business performance has helped support big payout growth and should continue to do so over the long term.

Profitability is vital for dividend stock investors. Dividends can only be sustained in the long run through profits. Home Depot has increased its annual dividend per share from $1.56 to $7.60 from 2014 to 2023. That means if you bought Home Depot stock in 2014, your dividend per share would have increased roughly five-fold.

HD PE Ratio (Forward 1y) Chart

HD PE Ratio (Forward 1y) data by YCharts. PE Ratio = price-to-earnings ratio.

Thankfully, passive income investors can buy Home Depot stock today at a forward price-to-earnings ratio of 20. That's a fair valuation for a company with a proven competitive advantage that has delivered excellent profit growth. Of course, there are risks with every investment, but I feel the risk-versus-reward is worthwhile for Home Depot stock at these valuations.

Score wins with a varied approach to dividend stocks

Verizon and Home Depot are two very different kinds of dividend stocks. While Verizon is already a fairly mature business with modest growth opportunities going forward, the company is a cash-generating machine and already pays a huge dividend. By contrast, Home Depot offers a smaller yield but has better prospects for earnings growth and payout increases over the long term.

By taking a balanced approach to high-quality dividend stocks, investors have opportunities to strengthen their portfolios through diversification while leaving the door open for substantial passive-income generation. Along those lines, Verizon and Home Depot look like complementary investments capable of delivering wins over the long term.