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 The Home Depot, Inc. (HD), Costco Wholesale Corporation (COST), Target Corporation (TGT), Mastercard Incorporated (MA), and Analog Devices, Inc. (ADI).

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 The Home Depot, Inc. (HD), which is a leading home-improvement company with a long history of dividend growth. When deciding on a strong candidate for long-term dividend growth, I like to look for stocks showing a near-term pullback:

  • One-month performance: -1.29%
  • Historical big money buy signals

Just to show you graphically how I like to look at stocks, below are the big money signals that Home Depot has made over the past year. Green bars are showing that Home Depot stock was likely being bought by an institution, according to MAPsignals, while red bars indicate selling. Recently, there has been a lot of red.

Chart showing the big money buy and sell signals posted by The Home Depot, Inc. (HD)
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, Home Depot has a strong dividend history:

  • Three-year dividend growth rate: +25.4%
  • Current dividend per share: $1.50
  • Forward yield: 2.21%
  • Three-year earnings growth rate: +17.29%

Next up is Costco Wholesale Corporation (COST), which is a leading discounted wholesale supply retailer. Costco has a long dividend history, and shares have been in an uptrend 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. Let's look at recent performance:

  • One-month performance: -3.71%
  • Recent big money signals

Below are the big money signals that Costco stock has made over the past year. It is clear that the stock has seen green recently.

Chart showing the big money buy and sell signals posted by Costco Wholesale Corporation (COST)
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, Costco has a nice dividend history. Its earnings growth has been stellar as well:

  • Three-year dividend growth rate: +12.4%
  • Current dividend per share: $0.70
  • Forward yield: 0.77%
  • Three-year earnings growth rate: +14.04%

Next, I'm looking at Target Corporation (TGT), which is a leading department store chain with a solid dividend history. When deciding on a strong candidate for long-term dividend growth, recent performance in the shares is important:

  • One-month performance: -2.55%
  • Recent big money signals

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

Chart showing the big money buy and sell signals posted 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: 1.55%
  • Three-year earnings growth rate: +10.77%

Next, I'm looking at Mastercard Incorporated (MA), which is a leading credit card company. The shares have been on a tear over the past few years. When deciding on a strong candidate for long-term dividend growth, muted performance is not a bad thing:

  • One-month performance: -0.91%
  • Recent big money signals

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

Chart showing the big money buy and sell signals posted by Mastercard Incorporated (MA)
​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, Mastercard has a strong dividend history.

  • Three-year dividend growth rate: +18.7%
  • Current dividend per share: $0.44
  • Forward yield: 0.52%
  • Three-year earnings growth rate: +31.46%

Lastly, I'm looking at Analog Devices, Inc. (ADI), which is a leading semiconductor company. When deciding on a strong candidate for long-term dividend growth, I like to look for recent leaders:

  • One-month performance: +5.34%
  • Historical big money signals

Below are the big money signals that Analog Devices stock has made over the past year. 

Chart showing the big money buy and sell signals posted by Analog Devices, Inc. (ADI)
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, Analog Devices has been a steady grower:

  • Three-year dividend growth rate: +10.7%
  • Current dividend per share: $0.62
  • Forward yield: 1.72%
  • Three-year earnings growth rate: +24.62%

The Bottom Line

Shares of Home Depot, Costco, Target, Mastercard, and Analog Devices 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 personal and managed accounts in Home Depot, Costco, and Analog Devices, but no positions in Target and Mastercard.

Disclaimer