Dividend stocks are a must-own component for any investor looking to establish serious wealth. We all know the statistic that the S&P 500 has returned 10.5% annually on average since its creation in 1957. It is one of the reasons the index is considered the benchmark against which we should compare our portfolios.

What’s not as well known is that over the past 60 years, dividends have made up 85% of the index’s total return. Without dividend stocks and the reinvestment of those payouts, the S&P 500 would offer meager gains.

As a dividend growth investor, I’m looking to juice my returns even more. I want to see the dividend stocks I own grow their payouts over time, often by double-digit percentages. What follows is a list of top dividend stocks to watch. They are companies that have a strong history of rewarding shareholders by ever-increasing amounts. Not all will be increasing their payouts by 10% or more, but many do. All of them deserve a place on your watch list for the third quarter to buy and hold for the long term.

Automatic Data Processing (ADP)

Payroll processor Automatic Data Processing (NYSE:ADP) is the first dividend stock to watch. Hardly a hidden gem, it is more a diamond in the rough since many investors ignore it because it is so ubiquitous. 

Founded in 1949 and going public 12 years later, ADP has a long history of paying its shareholders a dividend. It made its first quarterly payment in 1974 and has reliably raised the payout for 49 consecutive years. It is about to become a Dividend King, or a stock that has raised its dividend for 50 years or more. The payout yields 2% annually.

More remarkable is that the payroll leader has been increasing the payment at a compounded annual growth rate (CAGR) of over 11% annually for the past decade. Because its business throws off so much cash it can reward shareholders over time. ADP generated $3.6 billion in free cash flow (FCF) last year while paying out $1.9 billion in dividends. Its free cash flow payout ratio of 52% means the dividend is safe, well-supported and has plenty of room for future growth.

ADP stock is up only 8% so far in 2024. With Wall Street forecasting earnings growth of 10% annually for the next five years, it makes it a great time to buy the stock.

Wendy’s (WEN)

Fast-food chain Wendy’s (NASDAQ:WEN) is probably more of a surprise as a rising dividend star. The burger joint began paying dividends 20 years ago and has raised the payout at a whopping 17% CAGR for the last 10 years. It is even better in more recent periods with the quick-serve restaurant growing its dividend at 19% a year for the last five years.

Wendy’s payout is also well-supported as it generates substantial FCF. Cash profits have grown 10% annually over the last decade and at a rate exceeding 21% a year for the past five years. While its FCF payout ratio is on the high side at 80%, it does show there are sufficient profits to keep making payments. The dividend yield 6% annually.

The quick-serve restaurant has bolstered its business fundamentals, too. It improved its menu through innovation and the launch of breakfast options. Store remodels and positioning itself as a value meal destination have helped make it a favorite destination for customers. That’s evident in stable same-restaurant sales growth.

Often overshadowed by rivals McDonald’s (NYSE:MCD) and Burger King, Wendy’s stock earns its place on your watch list.

Aflac (AFL)

Life insurance giant Aflac (NYSE:AFL) deserves a seat at the table. Hurt by the pandemic and the wave of claims that ensued, Aflac has worked diligently to build up its bottom line again. Notably, the global health crisis did not impact its dividend. The insurer continued making its payout through the turmoil, adding to its 41-year history of making and raising its dividend payment.

Although increases slowed during that period, for the last five years it has hiked its dividend by 13% a year. It also sports a low FCF payout ratio of just 30%, meaning it has plenty of opportunity to raise the dividend by substantial amounts. The dividend yields 2.1% annually.

Like death and taxes, life insurance will always be with us and will protect our financial security from at least one of those eventualities. This benefits Aflac with a reliable, steady stream of profitable revenue.

With claim costs falling, new products added and the past few years of strong net interest income due to the high interest rate environment, Aflac is on a firm financial foundation and a dividend stock to watch.

Costco (COST)

Warehouse club Costco (NASDAQ:COST) has been a tremendous dividend stock to own that has grown its payout at double-digit rates. The retailer’s dividend has expanded at a 13% CAGR over the last five- and 10-year periods, but it has a 20-year track record of raising the payout. The retailer’s dividend yields only 0.6% annually. Yet, if you only focus on that, you miss the bigger picture.

Costco’s dividend has grown from $1.21 per share in 2013 to $4.64 per share today. More rewarding is the fact that Costco often rewards shareholders with a special dividend payment. Last December it announced a $15 per share dividend payment for investors and has made similar extra payments in 2012, 2015, 2017 and 2020 for varying amounts.

The warehouse club is able to grow and support its dividend because it is a profit-producing machine. Earnings over the last five years are up 88% and they’ve more than tripled over the past decade. The stock itself is up 48% over the last 12 months.

Although shares pulled back 9% after it raised its membership fees for the first time in seven years, that represents an opportunity for shareholders. Those extra revenues will flow straight through to the bottom line.

RTX (RTX)

Defense contractor RTX (NYSE:RTX) will deliver some offense to your portfolio. Shares are up 37% this year as demand for weapons systems grows. It manufactures numerous defense systems but missile systems are one of its primary outputs.

In its just reported second-quarter earnings, its Raytheon division saw a 4% increase in adjusted sales to $6.5 billion. Patriot and Stinger missile systems, along with anti-drone systems, helped lift the total. Raytheon accounts for one-third of total revenue.

However, Collins Aerospace could quickly become RTX’s crown jewel. The commercial aviation business saw sales rise 10% with operating profits surging 24% year-over-year. It could see sustained growth in the years ahead as the commercial aerospace manufacturing sector grows.

RTX pays a dividend of $2.52 that yields 2.2% annually. It has paid a dividend every year since 1936 and has raised it for 30 consecutive years. So, this rising star should be on your watchlist.

American Tower (AMT)

Specialty real estate investment trust (REIT) American Tower (NYSE:AMT) leases cellular towers to wireless service providers, and radio and television broadcast companies under long-term leases. More recently it expanded into data centers where it owns 28 facilities.

American Tower is the biggest owner-operator of towers with over 224,000 communications sites globally. In the U.S., Statista says there are 129 companies that own towers. Yet, 75% of them belong to just three companies, and AMT is the largest, owning one-third of them. Other analysts suggest American Tower has a 63% market share.

That’s important for American Tower’s future growth as mobile communications rapidly expand. More and better coverage will be insisted upon by wireless carrier customers. 

AMT has raised its dividend by more than 16% annually for the last 10 years while growing FCF at a 12% CAGR. Over the last five years, FCF has grown nearly 18% annually. It makes the specialty REIT a dividend stock to watch.

Dick’s Sporting Goods (DKS)

Investors hit a home run with Dick’s Sporting Goods (NYSE:DKS). The sporting goods retailer stock is up 45% in 2024, has doubled over the past three years and is up nearly 460% over the last five. Equally impressive are its dividend stats. 

Over the past decade, DKS has increased its payout by a 24% CAGR, but in the last five years that has swelled to almost 32%. As FCF growth has kept pace, the sporting goods retailer has a low 32% FCF payout ratio.

While consumers can buy their sporting goods equipment and apparel from any number of retailers, online or off, they have increasingly chosen Dick’s as the place to shop. As the largest pure-play sporting goods retailer, it benefits from having everything under one roof. With strong partners like Nike (NYSE:NKE) and Adidas (OTCMKTS:ADDYY), Dick’s can meet the current trends in sports and athleisure fashion.

It might not have much of a competitive moat, but Dick’s Sporting Goods has exploited its position to good effect. It is why the retailer is a top dividend stock to watch.

JPMorgan Equity Premium Income ETF (JEPI)

For investors who might want broad coverage and not go through the process of buying individual stocks, exchange-traded fund (ETF) JPMorgan Equity Premium Income ETF (NYSEARCA:JEPI) is one to consider. It pays its dividends monthly and offers a rich 6.5% yield.

JEPI, as the ETF is known, seeks to deliver income by both investing in large cap stocks and trading options. It wants most of its returns to be associated with the S&P 500 index but with less volatility. Its top three holdings are Progressive (NYSE:PGR), Trane Technologies (NYSE:TT) and Amazon (NASDAQ:AMZN). Yet if you look over its biggest positions, you notice they are not exactly high-yielding stocks. So how does JEPI generate such big yields?

It does so by investing up to 20% of its portfolio into equity-linked notes (ELN), essentially an advanced covered call option. JEPI collects premiums from buyers of those options. So, most of the dividends JEPI pays are from those premiums. The ETF tends to perform better during volatile market periods, especially down markets. It can often serve as a hedge for such times.

Yet the ETF is not for everyone. Because of the ELNs, a portion of its dividend payments are taxable, meaning JEPI is best held in a tax-deferred account. This ultra-high-yield stock may be best for those about to retire or who are retired and looking for immediate dividend income. But it is still a dividend stock to watch.

On the date of publication, Rich Duprey held a LONG position in RTX stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.