Dividend investors have several criteria to examine when evaluating the long-term prospects of dividend stocks. Yield may be what first comes to mind, but generating strong returns through this style of investing entails more than just buying the stocks with the highest forward dividend yields.
If you "set it and forget it" in this manner, you may run the risk of building a portfolio made up mainly of yield trap stocks. Hence, investors should consider factors such as dividend growth track record and dividend safety.
Taking into account these three factors, I have identified three major dividend stocks that meet the criteria for each of these factors: Cardinal Health (CAH 0.18%), Chevron (CVX 1.48%), and Target (TGT +0.66%).
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Cardinal Health may not have the highest yield, but it has three decades of dividend growth on its side
Cardinal Health, a healthcare products distributor, has 30 years of consecutive dividend growth under its belt. Currently, the stock has a forward dividend yield of just 1%. Yes, this yield may not sound too exciting, but let's dig deeper.
NYSE: CAH
Key Data Points
Year to date, shares have rallied by over 73%. As I noted last month, Cardinal Health's market-beating returns are a result of its successful transformation. By pivoting toward higher-margin segments of the healthcare industry, like specialty pharmaceuticals and managed services, the company has experienced a strong surge in earnings growth.
Sell-side forecasts expect this to carry on over the next two fiscal years, with estimated earnings growth of 19.3% and 12.6%, respectively, during FY 2026 and FY 2027. With this surge in earnings growth, the company now has a relatively low dividend payout ratio of just 30.6%. While not certain, the company could decide to return more of its earnings to shareholders.
From there, who knows? Cardinal, which in 2025 only increased its dividend by 1% last year, could consistently raise its dividend at a level more in line with earnings growth, turning into a stronger dividend growth play in the process.
Chevron's new shareholder-friendly agenda bodes well for future payout growth
Like other major energy companies, Chevron has faced challenges from low crude oil prices, which have impacted its bottom line. However, Chevron exceeded expectations when it last reported quarterly earnings, thanks to production numbers that were greater than expected.
NYSE: CVX
Key Data Points
Furthermore, as unveiled in a Nov. 12 investor presentation, the company plans to place greater priority on cash flow growth. Management intends to achieve this primarily through cost reductions, including operating cost cuts, as well as reductions in capital expenditures. Chevron also anticipates strong organic growth from its move into the power generation business, supplying artificial intelligence (AI) data centers with electricity produced via natural gas.
In turn, the company also remains committed to return-of-capital efforts, such as share repurchases and dividend increases. Chevron has a dividend growth track record spanning nearly 40 years. Over the last 25 years, the company has increased its dividend by an average of 7% annually.
Chevron currently has a forward dividend yield of around 4.5%. Although its current dividend payout ratio is relatively high, at around 95%, the overall tone of the investor presentation suggests that Chevron will pursue all means of cash flow growth before considering a dividend cut or suspension.
Target remains a strong "get paid while you wait" situation
The phrase "get paid while you wait" may seem cliché, and in some cases, a red flag. That's because, in many situations, there are turnaround stocks paying out a high dividend that fail to turn around, becoming yield traps in the process. However, the situation could play out differently with Target.
NYSE: TGT
Key Data Points
For one, even as the discount retailer has experienced various headwinds lately, the stock's forward annual yield of 5% appears sustainable. The stock's current payout ratio comes in at just under 55%, adequate to sustain the current rate of payout. One of the Dividend Kings, Target has raised its payout for over 50 consecutive years -- 54 to be exact.
The company's latest dividend increase may have only been 1.8%, but future dividend increases could be far more substantial, assuming that an improved macroeconomic picture, coupled with efforts to improve the customer experience, translates into earnings growth in the years ahead.
Better yet, if Target, as a company and as a stock, remains "stuck in the mud," it may become an even more tempting takeover target. As I discussed back in October, there have been consistent rumors that private equity firms may be interested in taking Target private, in a transaction similar to the recent take-private of department store operator Nordstrom.
