For decades, income-minded investors have searched for the best dividend stocks out there. In my experience, the main criteria to look for when betting on great dividend stocks is a history of strong fundamentals, increasing dividend distributions over time, great entry points (technicals), and a history of bullish trading activity in the shares.

The hallmark way I go about finding the best dividend stocks – the outliers – is by looking for quiet unusual trading activity. Oftentimes, that can be institutional activity – i.e. big money. I'll go over what that unusual trading activity looks like in a bit. But the five stocks I see as long-term dividend growth candidates are Lam Research Corporation (LRCX), Merck & Co., Inc. (MRK), Microsoft Corporation (MSFT), Target Corporation (TGT), and Texas Instruments Incorporated (TXN).

Over decades, I've learned that the true tell on great stocks is that big money consistently finds its way into the best companies out there … especially dividend-paying stocks. Some of the biggest returns ever have come from holding stocks for many years and reinvesting dividends. I am a very long-term minded person and see dividend investing as a pillar in personal finance and financial independence.

I take a well-rounded approach and rank each stock by technicals (long-term), fundamentals (long-term), and if there is big money supporting the stock. I want the odds on my side when looking for the highest-quality dividend stocks … and I own many of them. Many times, when a stock is under pressure, it's worthy of inspection. As stock prices head lower, the dividend yield increases. That is important for dividend seekers.

Up first is Lam Research Corporation (LRCX), which is a leading semiconductor company that is consistently growing and raising its dividend. When deciding on a strong candidate for long-term dividend growth, I like to look for stocks showing near-term weakness.

  • One-month performance: -5.85% 
  • Historical big money buy signals

Just to show you graphically how I like to look at stocks, below are the big money signals Lam Research stock has made over the past year. Green bars are showing that Lam Research stock was likely being bought by an institution according to MAPsignals, while red bars indicate selling. Recently, there has been some red. Buying on dips can really help a dividend investor.

Chart showing the unusual institutional (UI) buy and sell signals posted by Lam Research Corporation (LRCX)
www.mapsignals.com, end-of-day data sourced from Tiingo.com

On top of technicals, when deciding on the best dividend stock, you should look under the hood to see if the fundamental picture supports a long-term investment. As you can see, Lam Research has a strong dividend history.

  • Three-year dividend growth rate: +40.7%
  • Current dividend per share: $1.30
  • Forward yield: 1.57%
  • Three-year earnings growth rate: +15.48%

Next up is Merck & Co., Inc. (MRK), which is a leading health care company. Merck has a long dividend history, and shares have been rather muted recently. When deciding on a strong candidate for long-term dividend growth, it's a good idea to look for many years of dividend increases. Now let's look at recent performance.

  • One-month performance: -2.47%
  • Recent big money signals

Below are the big money signals that Merck has made over the past year. It is clear that the stock has been range bound for months.

Chart showing the unusual institutional (UI) buy and sell signals posted by Merck & Co., Inc. (MRK)
www.mapsignals.com, end-of-day data sourced from Tiingo.com

On top of technicals, when deciding on the best dividend stock, you should look under the hood to see if the fundamental picture supports a long-term investment. As you can see, Merck has a nice dividend history.

  • Three-year dividend growth rate: +6.9%
  • Current dividend per share: $0.61
  • Forward yield: 2.94%
  • Three-year earnings growth rate: +63.88%

Next, I'm looking at Microsoft Corporation (MSFT), which is a leading software company. Microsoft is an outlier stock with a great historical performance. When deciding on a strong candidate for long-term dividend growth, I like to look for leading companies on a pullback.

  • One-month performance: -9.21%
  • Recent big money signals

Below are the big money signals that Microsoft stock has made over the past year. It is clear that the stock has been in a nice uptrend.

Chart showing the unusual institutional (UI) buy and sell signals made by Microsoft Corporation (MSFT)
www.mapsignals.com, end-of-day data sourced from Tiingo.comOwner

On top of technicals, when deciding on the best dividend stock, you should look under the hood to see if the fundamental picture supports a long-term investment. As you can see, Microsoft has a strong dividend history.

  • Three-year dividend growth rate: +9.2%
  • Current dividend per share: $0.56
  • Forward yield: 1.08%
  • Three-year earnings growth rate: +43.33%

Next, I'm looking at Target Corporation (TGT), which is a leading department store. The shares have been on a tear recently. When deciding on a strong candidate for long-term dividend growth, technical leadership is always important.

  • One-month performance: +2.32% 
  • Recent big money signals

Below are the big money signals that Target has made over the past year.

Chart showing the unusual institutional (UI) buy and sell signals made by Target Corporation (TGT)
www.mapsignals.com, end-of-day data sourced from Tiingo.com

On top of technicals, when deciding on the best dividend stock, you should look under the hood to see if the fundamental picture supports a long-term investment. As you can see, Target has a strong dividend history.

  • Three-year dividend growth rate: +3.9%
  • Current dividend per share: $0.68
  • Forward yield: 1.76%
  • Three-year earnings growth rate: +10.77%

Lastly, I'm looking at Texas Instruments Incorporated (TXN), which is a semiconductor company. When deciding on a strong candidate for long-term dividend growth, I like to look for leading companies on a pullback.

  • One-month performance: -3.6% 
  • Historical big money signals

Below are the big money signals that Texas Instruments stock has made over the past year.

Chart showing the unusual institutional (UI) buy and sell signals made by Texas Instruments Incorporated (TXN)
www.mapsignals.com, end-of-day data sourced from Tiingo.com 

On top of technicals, when deciding on the best dividend stock, you should look under the hood to see if the fundamental picture supports a long-term investment. As you can see, Texas Instruments has been a steady grower.

  • Three-year dividend growth rate: +25.1%
  • Current dividend per share: $1.02
  • Forward yield: 2.95%
  • Three-year earnings growth rate: +17.46%

The Bottom Line

Shares of Lam Research, Merck, Microsoft, Target, and Texas Instruments represent a potential buying opportunity for the long-term dividend investor. Given the strong historical dividend growth and big money signals in the shares, these stocks could be worth a spot in a yield-oriented portfolio. 

Disclosure: At the time of publication, the author holds long positions in Texas Instruments, Microsoft, Merck, and Lam Research, but the author holds no position in Target.

Disclaimer