Suppose you want to focus on generating a stream of passive income you can rely on. While you could invest in Treasury bonds or rental property, one of the simplest ways to collect income today is by investing in dividend stocks.
Dividend stocks can be excellent income producers and tend to be higher-quality companies with more robust businesses. For example, Hartford Funds and Ned Davis Research did a study and found that dividend payers outperformed an equal-weighted S&P 500 index over the last five decades. Companies that grew their dividends performed even better with less volatility.
If you're looking to generate reliable long-term passive income, consider these three stocks with a long history of growing their dividend payouts.
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1. Caterpillar
Caterpillar (CAT 1.41%) is the first dividend stock that can deliver consistent passive income to your portfolio. While its yield is around 1.6%, the company has displayed a stellar track record of dividend growth, increasing its payout over 30 consecutive years.
While better yields can be obtained elsewhere, Caterpillar's sustainable income stream and cash management make it a reliable income producer. The stock has also provided investors with solid price appreciation over time. In fact, over the past 10 years, Caterpillar's total return (which includes reinvested dividends) is 298%, beating the S&P 500's 234% return.
Caterpillar has been a staple in the heavy machine industry for nearly a century. The company provides heavy machinery for essential industries like construction, energy, mining, and transportation. One thing to remember is that Caterpillar is a highly cyclical company, making it vulnerable to economic conditions and the demand for heavy machinery from construction and mining activities.
Caterpillar is focusing on growing its services and aftermarket parts revenue to help even out its earnings cycle and combat some of its cyclicality. The company aims to grow its service revenue to $28 billion by 2026, doubling its service revenue from 2016, by leveraging data and artificial intelligence to allow it to proactively service equipment to avoid interruptions -- making its long history of dividend raises more sustainable.
2. Chevron
Chevron (CVX 0.56%) has a long-standing commitment to rewarding shareholders, and it has done so with a dividend that has increased for 37 consecutive years. Its dividend payment currently yields around 4% for investors at today's price. Its long history of dividend raises displays its balanced business model in the volatile energy industry.
As an integrated oil and gas company, Chevron operates upstream operations (exploring, producing, and transporting crude oil and natural gas) and downstream operations (refining crude oil, transporting products, and running gas stations). The integrated business model works because it helps balance out fluctuations in oil and gas prices.
During times of rising prices, its upstream operations can benefit significantly. For example, in 2022, Chevron raked in $30 billion in operating income as oil prices rose. The integrated company used its windfall to increase stock buybacks, pay down debt, and make acquisitions.
Going forward, Chevron should continue to benefit from tight oil supplies and industry underinvestment. That, and its long history of solid capital management, make it another good dividend stock to own for the long haul.
3. Fastenal
Fastenal (FAST -0.65%) has grown its dividend payout for over 25 consecutive years, and currently yields investors 2.3% at today's price.
The company sells supplies to industrial and construction businesses through a network of in-market locations. It utilizes vending devices, bin stock devices, and e-commerce to distribute its products to customers efficiently. In 2019, the company introduced FASTBin technology, an inventory management solution that provides continuous inventory monitoring to replenish parts for customers quickly.
This focus on quickly getting its customers what they need helps Fastenal build a deeper relationship with those customers as a reliable provider of parts. It also provides the company with a recurring stream of long-term income.
Like other industrial companies, Fastenal is a cyclical stock that's vulnerable to the fluctuations of its industrial customers' businesses. However, the company has excellent capital management and a low debt-to-equity ratio. Longer-term trends, like an aging infrastructure and a resurgence of manufacturing in North America, should continue to power the dividend stock for years.
