The 3 Dow Stocks Dividend Investors Need

By Dan Caplinger

Even with thousands of U.S. companies to choose from -- and thousands more international giants -- some of the best stocks you can buy are hiding in plain sight.

Sound crazy? It's a fact. For proof, you don't have to look any further than the 30 members of the Dow Jones Industrial Average.

You won't find any higher-profile companies in the world than the Dow 30. These elite corporations have businesses that dominate not just the U.S. economy but the world economy. They're household names for billions of consumers around the world, they have brands whose values range well into the tens of billions of dollars, and they tend to pay consistent, reliable dividends.

Why dividends matter

Today's investors require more than just market-beating performance. You also want reliable income from your investments, as well as a smooth ride even in volatile markets.

That may sound like a tall order. But the fact is that dividend-paying stocks have delivered exactly that kind of dependable performance for decades. In fact, if you look back over the past 40 years, you'll see that dividend-paying stocks crushed their counterparts that didn't pay dividends. Looking at the numbers, dividend stocks outperformed non-dividend stocks by 7 percentage points annually. Over that almost-40-year span, that meant the difference between not even doubling your money versus multiplying it by 24 times.

Why are dividend stocks so valuable? The fact that they pay out cash to shareholders quarter after quarter forces dividend-paying companies to be honest about their businesses. A company may be able to hide behind accounting gimmicks and other tricks when it comes to the numbers it reports on a balance sheet, but when a company has to cut you a check every three months, many of those tricks simply don't work. In a world where financial scandals have become all too familiar, the comfort of dividends doesn't just mean better returns - they also help you sleep at night.

Separate the good dividends from the bad dividends

As you go looking for great dividend stocks, though, there are some pitfalls to watch out for. Keep reading to discover the high-dividend companies you might want to avoid as well as the three Dow stocks we think will prosper for years to come.