Key Points

• These three dividend growth stocks are the best operators in their respective niches.

• Each stock has a return on invested capital between 17% and 27%, showing a strong ability to reinvest in their businesses profitably.

• The trio's dividend yields all currently sit at or near 10-year highs.

I am an adherent to the Gardner-Kretzmann Continuum's strategy of owning at least one stock for each year of your age. Because of this notion, I have 37 "core" holdings that I try to add to consistently over time.

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However, while the S&P 500 has returned to new highs, three of my core holdings -- a trio of oft-ignored dividend growth stocks -- haven't followed this move higher, and I think that's an opportunity for investors.

Here's why now is the time to consider buying three of my favorite S&P 500 dividend stocks on the dip, while their shares are currently down between 19% and 26% from their highs.

1. Zoetis

Zoetis (NYSE: ZTS) is the top dog in the animal healthcare industry and has outpaced the S&P 500 since its initial public offering (IPO) in 2013. Zoetis offers a range of medicines, vaccines, diagnostics, genetic tests, and precision animal health solutions for dogs, cats, and six species of livestock.

Emboldened by the "humanization of pets" megatrend, the market bid up the company's valuation to a lofty average valuation of 47 times free cash flow (FCF) over the last decade. While Zoetis dominates its niche, this valuation was probably a little too optimistic for a company that traditionally grows its sales by high single digits, helping spur the stock's 19% decline from its highs this year.

Now trading at a much more reasonable 31 times FCF -- and with its 1.2% dividend yield near all-time highs -- Zoetis looks like a once-in-a-decade opportunity.

ZTS Price to Free Cash Flow and Dividend Yield data by YCharts

Although Zoetis is already home to 17 blockbuster products that generate over $100 million annually, what makes it a promising long-term investment is its return on invested capital (ROIC) of 22%. This high ROIC implies that the company excels at utilizing its debt and equity to fund new growth initiatives, whether it's introducing entirely new products or implementing lifecycle innovations that enhance existing ones.

Powered by this culture of continuous innovation, Zoetis has grown its FCF and dividend payments by 28% and 18% annually over the last decade, making it a top-tier compounder and dividend growth stock. Had investors bought the company at its IPO and held until today, they would be receiving a 6% dividend yield compared to their original cost basis.

With its parasiticides, dermatology, and pain products each growing sales by more than 10% in the latest quarter, Zoetis should continue to reward patient dividend investors handsomely.

2. Pool Corp.

Pool Corp. (NASDAQ: POOL) is the world's largest distributor of pool products and has been a 449-bagger for investors since its IPO in 1995. However, over the last three years, its share price has stalled out.

Hindered by the confluence of higher interest rates, fewer new home starts in the United States, and weakening consumer confidence, Pool's new pool construction and renovation orders have declined dramatically.

While this cyclicality can be uncomfortable for investors, the company is well positioned to battle this uncertainty. In fact, Pool generates 64% of its sales from non-discretionary maintenance and repair sales, such as the chemicals or replacement parts needed to keep the pool functioning. These recurring sales add a valuable layer of safety to the company's cyclical operations.

So in trying times like today, Pool may not be firing on all cylinders -- but it isn't at risk of going bankrupt anytime soon, either. Despite the headwinds the company is facing, it generated nearly $500 million in FCF over the last year and used the bulk of this to buy back shares at a discount, while Pool's stock is down 23% from its year-long highs.

Furthermore, Pool's average ROIC of 18% across its lifetime as a publicly traded company demonstrates that it is more than capable of navigating cyclicality in a profitable manner.

While the timing of a turnaround in the U.S. housing market is anyone's guess, I'm happy to pay 24 times FCF for Pool and receive growing dividend payments as we wait for sunnier days.

Now paying a 1.6% yield -- its highest level since 2012 -- Pool's dividend still only uses 38% of its FCF, despite the challenging environment. These figures highlight the ample dividend growth potential available to investors once the macroeconomic environment improves for Pool.

3. Old Dominion Freight Line

Less-than-truckload (LTL) hauling specialist Old Dominion Freight Line (NASDAQ: ODFL) has been a 305-bagger since its IPO in 1991. However, much like Pool, Old Dominion is also a cyclical stock.

While its revenue tends to rise over the long haul, it still fluctuates over shorter time frames.

ODFL Revenue (TTM) data by YCharts

Currently in the midst of a freight industry recession, Old Dominion has seen its stock drop 26% from its year-long highs, as industrial shipments remain weak and tariff concerns continue to weigh on the market.

Despite these unavoidable headwinds, the company remains the best-in-class LTL specialist.

ODFL, XPO, SAIA, ARCB, FDX Return on Invested Capital and Profit Margin data by YCharts

This industry-leading ROIC is a significant advantage for Old Dominion, as it demonstrates management's shrewd ability to continue taking market share by adding new service centers in a highly profitable manner.

Furthermore, its top-tier profit margin enables the company to repurchase shares during challenging economic times (as it is currently doing) and increase dividend payments more quickly when conditions improve.

Over the last decade, Old Dominion has removed more than one-sixth of its shares from the market. Meanwhile, although the company's dividend yields only 0.6%, it has grown by 33% over the last five years and utilizes only a modest 27% of the company's FCF.

Ultimately, when a freight industry turnaround actually occurs is impossible to know, but I'm confident Old Dominion will thrive when the good times arrive.

Should you invest $1,000 in Zoetis right now?

Before you buy stock in Zoetis, consider this:

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Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $699,558!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $976,677!*

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*Stock Advisor returns as of June 30, 2025

Josh Kohn-Lindquist has positions in Old Dominion Freight Line, Pool, and Zoetis. The Motley Fool has positions in and recommends FedEx, Old Dominion Freight Line, and Zoetis. The Motley Fool recommends XPO and recommends the following options: long January 2026 $195 calls on Old Dominion Freight Line and short January 2026 $200 calls on Old Dominion Freight Line. The Motley Fool has a disclosure policy.

Key Points

• Investing in attractive dividend growth stocks can lead to superior long-term returns.

• The two healthcare companies below generally deliver excellent returns and dividend growth.

• Both have long-term tailwinds that can allow them to maintain solid performances over the long run.

For investors focused on the long game, there is little reason to sell -- at least, so long as a company generates solid returns through consistently improving financial results, regularly increases its dividend (if it pays one), and maintains strong growth prospects. Although it's sometimes difficult to find corporations that can do all that over long periods, stocks of this caliber do exist.

Consider the following two healthcare leaders: Zoetis (NYSE: ZTS) and Eli Lilly (NYSE: LLY). They have checked all of those boxes over the past decade, and there are good reasons to believe they can continue to do so for a very long time, making them excellent "forever" stocks. Read on to learn more about these companies.

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1. Zoetis

Zoetis is a leading animal health company with a diverse portfolio of products spanning various categories, including livestock, companion animals, and more. The company has 15 products that generate over $100 million in annual sales and consistently grows its revenue at a rate faster than most of its peers. Between 2014 and 2023, the company's top line increased at a compound annual growth rate of 8%, compared to the 5% the industry average.

The company has encountered some headwinds recently. Most notably, recent drug approvals by competitors could challenge the market share of one of Zoetis' most significant growth drivers, Apoquel, which helps treat allergic itch in dogs. Even so, Zoetis has dealt with competition for years and has still performed well. Although this issue may somewhat affect its results in the short term, the company's prospects look attractive for several reasons. First, Zoetis will continue to launch newer products.

It has proven itself to be an innovative leader in the animal health industry. Some of Zoetis' recent approvals, such as Solensia (first approved in 2022) and Librela (first approved in 2023) -- which treat osteoarthritis pain in cats and dogs, respectively -- are already helping drive sales growth. There will undoubtedly be plenty more such commercial launches in the future.

In the long run, Zoetis will benefit from the growth in the pet population, which has been ongoing for several decades in countries like the U.S., as well as other trends such as increased demand for protein sources due to human population growth, resulting in a greater need for products that help care for livestock. Zoetis can ride these tailwinds for a very long time.

Finally, the company offers a solid dividend program, despite a forward yield of just 1.3%, which is equal to the average yield for the S&P 500 index. Still, Zoetis' payouts have increased by an impressive 502% over the past decade. Yet its payout ratio of 31.6% remains conservative. There is ample space for more dividend hikes for Zoetis. Expect the company to offer consistent payouts and solid returns over the long run.

2. Eli Lilly

Eli Lilly has garnered significant attention in the past five years for its work in weight management, but the company has also quietly increased its dividends at a steady pace. The drugmaker's payouts have doubled over the past five years. That's not surprising. Eli Lilly's business seems to be firing on all cylinders. Revenue and earnings have been growing rapidly. The company's first-quarter top line jumped 45% year over year to $12.7 billion.

Most similarly sized pharmaceutical leaders would be thrilled to increase their revenue by a third of that percentage. That speaks volumes about Eli Lilly. And while its recent clinical and regulatory successes in the anti-obesity space are doing most of the heavy lifting, the company isn't a one-trick pony. Eli Lilly has blockbuster medicines in other areas, such as immunology -- with Taltz -- and oncology, thanks to Verzenio.

Even the company's pipeline is diversified across multiple therapeutic areas. It has recent approvals, too. Such products as Kisunla, which treats Alzheimer's disease, could eventually generate more than $1 billion in annual sales. Here's the point: Eli Lilly is an incredibly innovative company with a leadership position in diabetes and obesity, as well as significant footprints in other fields. The company is well positioned to develop new and improved products while generating above-average returns over the long term.

That's why dividend investors shouldn't be turned off by the company's low 0.8% forward yield. Eli Lilly's solid track record and modest cash payout ratio of 44% tell us plenty. That, combined with Eli Lilly's strong underlying business, makes it an attractive buy-and-hold option.

Should you invest $1,000 in Eli Lilly right now?

Before you buy stock in Eli Lilly, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Eli Lilly wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $699,558!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $976,677!*

Now, it’s worth noting Stock Advisor’s total average return is 1,060% — a market-crushing outperformance compared to 180% for the S&P 500. Don’t miss out on the latest top 10 list, available when you join Stock Advisor.

See the 10 stocks »

*Stock Advisor returns as of June 30, 2025

Prosper Junior Bakiny has positions in Eli Lilly. The Motley Fool has positions in and recommends Zoetis. The Motley Fool has a disclosure policy.