Unlike high-growth stocks, long-term dividend stocks typically represent established companies with consistent profitability. They appeal to investors for two main reasons: steady income and long-term capital appreciation.

In this article, I will discuss three promising dividend stocks. These selections are not just based on their current yield. They also have the potential for long-term outperformance due to the sustainability of their businesses.

Another key consideration is their historical dividend growth. According to Proshares, dividend growth companies have outperformed the S&P 500. The following three stocks have grown their dividend at an annualized rate above 14% over the last five years. Furthermore, they generate tremendous cash flow to support consistent dividend raises.

These stocks belong to different sectors, presenting a diverse income basket. Due to their dividend growth record, they stand out in the crowded field of dividend-paying companies. They will contribute to balancing income generation and capital growth in your investment portfolio.

CME Group (CME)

CME Group (NASDAQ:CME) has become one of the best long-term dividend stocks to consider. As of this writing, it yields 2.2% and has posted an impressive annualized 5-year dividend growth rate of 43.9%. Yet, considering its fundamentals, more dividend growth is on the horizon.

Statista states this is the largest derivatives marketplace in the U.S. and the third largest globally. It supports futures, options, cash and OTC markets trading. As a securities exchange, CME’s growth is underpinned by the secular growth in futures and options trading volumes. The exchange enables market participants across the globe to manage risk.

Today, the exchange business is one of the most resilient businesses in the world. During periods of economic expansion, trading volumes match or exceed GDP growth. Also, volatility during market turmoil can increase trading volumes, maintaining profitability.

Fundamentals are solid; the third quarter of 2023 was the ninth consecutive quarter of double-digit adjusted EPS growth. Still, CME has several new products that will boost profits and increase cash flows available for dividends. For instance, its crypto derivatives business, the enhanced cross-margining arrangement program and weekly options for assets like WTI Crude Oil.

Everyday market participants globally turn to CME Group for risk management using benchmark futures and options contracts. In 2023, average daily volume outside the U.S. hit a record 6.8 million contracts. It’s evident that business momentum is solid, and this dividend stock will continue to deliver.

Kroger (KR)

This grocery retailer has been a mainstay in American households for decades and has one of the most recession-resistant businesses. Groceries are necessary, supporting the fundamental thesis for Kroger (NYSE:KR), the second-largest grocer in the U.S., behind Walmart (NYSE:WMT). Yet, the stock is trading at a very cheap historical valuation.

The company has been in limbo since it agreed to acquire Albertsons (NYSE:ACI) in a $24.6 billion deal. Unfortunately for Kroger, the deal has faced scrutiny from the Federal Trade Commission and opposition from unions, state officials and consumer groups. The two companies plan to divest 413 stores and eight distribution centers to appease antitrust regulators.

Due to regulatory overhang, KR stock has lagged behind its peers. It is up 6% since the announcement compared to Walmart’s 25%. As a result, it’s trading below its 5-year average, trailing non-GAAP price-to-earnings. As of this writing, it trades 10.5 times compared to the 5-year average of 11.9.

This undervaluation and a discount to the sector place Kroger in the undervalued long-term dividend stocks camp. It is cheap and pays a healthy dividend with incredible growth, increasing payments by 15.7% annually over the last five years.

Since KR stock has a low payout ratio, the dividend could grow further, boosting the current 2.5% yield. If the merger is approved, EPS growth will accelerate, supporting further dividend growth. And if the FTC blocks it, the company will allocate more capital toward buybacks and dividends.

Broadcom (AVGO)

Broadcom (NASDAQ:AVGO) is the ideal stock for income and growth. Indeed, it is one of the top long-term dividend stocks in the technology sector for several reasons. First, it’s one of the semiconductor companies that has benefited from AI. Secondly, it has been a dividend growth star over the past decade.

Due to AI demand, the company is bound for revenue growth. According to Wall Street estimates, it will grow revenues by 39% in fiscal year 2024, ending October. Management is also optimistic about the demand for Ethernet solutions and custom AI accelerators. They see soaring demand from cloud providers as they build their AI clusters in data centers.

As of this writing, Broadcom pays a 1.9% dividend that is adequately covered by its cash flow generation. In the fiscal year ending Oct. 29, 2023, its free cash flow was $17.6 billion, representing 49% of revenue. This excellent profitability lifts the prospects of dividend growth.

So far, management has committed to shareholder returns with 13 years of dividend growth. The company has also increased the dividend by 14.7% annually over the last five years. With the company expecting an adjusted EBITDA of $30 billion in FY 2024, there is enough financial flexibility to keep rewarding shareholders.

Last quarter, management increased the quarterly dividend from $4.60 to $5.25 per share, a 14% increase. Yet, with the VMware acquisition, management expects to increase cash flows. Thus, Broadcom is likely to extend its 13-year dividend growth record.

On the date of publication, Charles Munyi did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.