5 Dynamic Dividend Stocks

The New York Yankees of the '50s and the Chicago Bulls and Dallas Cowboys of the '90s had one crucial element in common: consistent excellence in their organizations and performance. That's a rare accomplishment, but if you think it could never occur in your portfolio, think again. Carefully chosen dividend-paying stocks could be your key to superstar returns.

Build the next investing dynasty
These long-haul outperformers can help you build your fortune, as studies from investing gurus such as Jeremy Siegel have shown time and time again. Finding them is the mission of our Motley Fool Income Investor service.

POSCO (NYSE: PKX  ) , for example, has returned 156% since April 2005, and it’s currently rewarding investors with a 2.6% yield. Or consider Total SA (NYSE: TOT  ) , which has returned 77% since December 2003, atop a current 4.1% yield. While these stocks happen to be Income Investor recommendations, you don't need to be a subscriber to get these great gains.

Identify new talent
With the help of Motley Fool CAPS, we'll search for the best dividend-paying stocks around. Here are several dividend picks that have also earned high ratings from the 110,000-plus members of our CAPS community:

Company

Yield

CAPS Rating (out of 5)

American Eagle Outfitters (NYSE: AEO  )

2.9%

****

Diana Shipping (NYSE: DSX  )

11.3%

*****

Vodafone (NYSE: VOD  )

6.8%

****

Johnson & Johnson (NYSE: JNJ  )

2.7%

*****

Penn West Energy Trust (NYSE: PWE  )

13.4%

*****

Sources: Yahoo! Finance and CAPS, as of July 17.

Any one of these quality companies would add some dividend excellence to your portfolio, but I thought I'd kick off further research with a closer look at a few of these dividend payers.

A dividend a day keeps the doctor away
Johnson & Johnson isn't the stock you turn to when you're looking to add a highflier to your portfolio, but in a market like the one we’ve faced recently, it's a great stable stock to have anchoring your holdings. Think of it as the equity Arnold Schwarzenegger to combat a recessionary T-1000.

Though its dividend isn't huge, it's about as safe as they come, since J&J pulls in way more cash than it needs to meet its payout. Even better, the company has an impeccable record of raising the dividend.

CAPS All-Star CubsBearsBulls43 recently rated J&J an outperformer, writing:

[J&J is a] well run company generating significant profits in a difficult economy. This will not be a high flier but, while the general market is in a funk, [J&J] should outperform. With its dividend, this is an excellent long term holding for retirement accounts.

Rollin' in the dividends
But if what you're really looking for is a dividend the size of Governator Arnold, then Penn West Energy Trust may catch your fancy. Penn West is a Canadian royalty income trust -- aka "a CanRoy" -- that has its wagon hitched to oil and natural gas properties. And while oil and natural gas have generally been a good place to be over the past couple of years, the CanRoy structure made Penn West even more attractive. Historically, CanRoys did not have to pay any corporate income tax on their profits as long as they distributed the bulk of those profits to their investors.

But things aren't quite as picturesque as they once were. Though oil prices have stayed high, they've been very volatile, and some market watchers are predicting that they could lose some of their big gains. Canada has also decided to start taxing CanRoys, and starting in 2011, the distributions they make to investors will no longer be tax-deductible.

CAPS members haven't been deterred, though. The stock carries a top-notch five-star rating, and CAPS members are convinced that the tax changes aren't a good reason to pass over this stock. As CAPS All-Star TMFDeej put it, by the time the company has to make the decision about whether to reorganize, "oil will be over $150/barrel by then and the company's assets will be worth so darn much it won't matter what they do."

Get into the action
You can check out who else has been bullish on these stocks, as well as chime in with your own thoughts, by heading over to CAPS. You may also want to check out a few of the other top-rated dividend payers above while you're there.

Dividend stocks could help you transform your portfolio from the flash-in-the-pan Florida Marlins into the dependable New York Yankees. And if you hate the Yankees, it's probably because they're so darn good, so darn often.

More CAPS Foolishness:

Total SA, POSCO, and Johnson & Johnson are Motley Fool Income Investor selections. American Eagle Outfitters is a Stock Advisor pick. The Fool owns shares of American Eagle. Try any of our Foolish newsletters today, free for 30 days.

Yankees fan and Fool contributor Matt Koppenheffer firmly believes that the Yanks are simply waiting until after the All-Star break to turn on the afterburners. He does not own shares of any of the companies mentioned. The Fool’s disclosure policy is a true investing dynasty.


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