Finding the Perfect Dividend Stock

"Do you know the only thing that gives me pleasure? It's to see my dividends coming in."

-- John D. Rockefeller

In one of my previous jobs, I helped manage a group of large individual investment portfolios. Some, in fact, were nine figures.

The biggest investing lesson I took from studying those successful portfolios was: Buy dividend-paying stocks and, most importantly, buy them early.

See, these portfolios contained long-term winners like 3M (NYSE:MMM) which, in most cases, had been bought decades before and were now paying out tens of thousands of dollars in annual dividend income.

The owners of the portfolios didn't close their eyes, pick stocks like 3M out of a hat of blue chips, and hope for the best. They took the time to learn about and select companies with sustainable business models and long track records of increasing shareholder value through capital gains and dividend growth.

That extra effort to hand-pick the perfect dividend stocks paid off for them, and they're reminded of their wise decisions each quarter when their dividend checks roll in.

Your turn to build a dividend dynasty
Not all dividend stocks are created equal, however. Witness the slashed dividends from stocks like Wachovia and MBIA this year -- they serve as harsh reminders that dividend payments are not guaranteed. That's why it pays to study the company's earnings quality and payout ratio to make sure it can continue to pay dividends.

Before we get into all of that, however, let's get you a few dividend stocks to research. To get you started, we'll get help from both the 105,000 investors participating in Motley Fool CAPS and the new CAPS stock screener, and find dividend-paying stocks with:

• Return on equity greater than 10%.
• A dividend yield greater than 3%.
• A four- or five-star CAPS rating.

Here are a few of the results:

Data from Motley Fool CAPS and Yahoo! Finance as of June 12.

These stocks are promising, but note: This is not a list of formal recommendations. Instead, use it as a starting point for further research.

What's to like?
When it comes to dividend-paying stocks, investors aren't necessarily interested in high growth, nor should they expect it. What's appealing about dividend stocks is they can provide income and earnings growth -- some might say it's the best of both worlds. Let's see why investors like these four dividend stocks.

Telkom Indonesia
In March, CAPS All-Star AlphaMale11 argued that demographics will provide a tailwind for Telkom Indonesia: "Indonesia has the fourth highest population in the world. Since only 40% of Indonesians have cell phones, growth potential is great."

Permian Basin Royalty Trust
It would have paid to heed the advice of TexasLonghorns, who has first-hand knowledge of the Permian Basin. His March pick has subsequently outpaced the market by 23 percentage points.

Having worked the Permian Basin in the "Oil Patch", I know the area well. There are thousands of "stripper wells" that are reopened every time oil goes above a certain price. Capped when it goes below a certain price. Oil isn't coming back down folks! This one is a no-brainer with it's healthy 12% dividend and stable income platform.

Navios Maritime Holdings
June has not been kind to Navios thus far, with the stock losing almost 19% of its value in just two weeks. Nevertheless, the stock retains its 5-star rating, and received positive support from mattohara77 who rationalizes: "Great entry point. Low P/E, high growth, and dividend!! Icing on the cake is huge demand in a charging sector!"

US Bancorp
The Minnesota-based bank has held up fairly well in the midst of a global financial crisis. In January, the Fool's own TMFMattyA added his prescient comments:

USB in my view is the safest of the major U.S. banks for playing a potential turnaround in the financial/banking industry in 2008 and beyond. Berkshire Hathaway's (NYSE:BRK-A) (NYSE:BRK-B) investment helps mightily with the thesis, but so does the 6 percent dividend yield, and the relatively negligent exposure to subprime (at least in relation to many of its peers). USB won't leap and bound, but it will be market-beater.

What do you think about these stocks? Do you disagree with their ratings? CAPS' 105,000 investors are waiting to hear what you think. So sign up today. CAPS is 100% free and guaranteed to educate, amuse, and enrich.