If you're like me, you want to build wealth for life by beating the market. You want to stay ahead of the masses who stash their money in savings accounts (gasp!), bonds, and even index funds. You certainly don't want to lose to them. There's no feeling worse than knowing that you'd be doing better by doing nothing.

But you take on the risk of losing to the market if you stash substantial portions of your hard-earned dollars in non-dividend payers, underperformers, or, worst of all, non-dividend-paying underperformers. Because when your investment dollars stagnate, even the lowly T-bill will take you to the woodshed.

The greatest growth is fueled by dividends
Master investors like former Vanguard Windsor Fund manager John Neff knew that a solid dividend payer is a lifelong investment. During his 32 years at the helm, Neff beat the market by more than three percentage points each year on the back of dividends, earning an extra $175,000 on every $5,000 invested in his fund. That is a true dividend dynasty. And you can build one, too.

Building your dividend dynasty
Wal-Mart has been one of the market's best-performing stocks, up nearly 100,000% since its IPO. And it's been paying and increasing its dividend ever since the company declared its first dividend in 1974. That's proof positive that a dividend doesn't hamper growth.

Another great long-term investment has been American States Water (NYSE:AWR), which has paid a dividend every year since 1931 and has increased its payout every year since 1953. Clorox (NYSE:CLX), another substantial outperformer, started paying a dividend soon after it came public in 1980 and boasts a 20-year compound annual growth rate (CAGR) of 16%. And then there's Emerson (NYSE:EMR), a company with 115 years of history, a 46-year track record of rising dividends, and another 15% market-beating trailing 20-year CAGR. Not only did the dividends in these examples put money into shareholders' pockets, but they also indicated that management was confident in the future and that their business models were generating substantial amounts of cash.

These are good companies now, but 15 years ago, they could have been the foundation of your dividend dynasty -- a source of financial security for you and your family. Microsoft CFO John Connors expressed it best when he said, "Declaring a dividend demonstrates the board's confidence in the company's long-term growth opportunities and financial strength."

The secret to success
It may shock you to hear that the best stocks are not always those with the best products, the biggest revenues, or even the largest profits. The best investment opportunities are those run by managers who want to create maximum shareholder value. You'll find amazing winners among unknown payers such as Income Investor recommendation Pitney Bowes (NYSE:PBI), which has risen nearly 2,000% since 1985. Compare that performance to those of such big-name non-payers as AES (NYSE:AES), Chiron (NASDAQ:CHIR), and Liberty Media (NYSE:L).

Great management can come from anywhere, and it builds a company with rising earnings per share, limited dilution, manageable debt, and a consistent ability to deploy capital and use its assets effectively. That leads to the richest treasure of all: considerable amounts of free cash flow, which allow a company to reward shareholders with a growing dividend.

As I see it, the dividend is the key to it all.

The cornerstones of tomorrow's dynasty
The stocks of tomorrow's dividend dynasty aren't just the ones paying substantial yields. If that were the case, everybody and his or her broker would be building one. Tomorrow's dividend dynasties are both dividend and capital-gains growth opportunities. That means they're:

  1. Underfollowed.
  2. Undervalued.
  3. Underappreciated.
  4. Committed to creating shareholder value.

To build your own dynasty, search for these traits and don't ignore boring industries -- utilities, insurers, consumer products, banks -- or even foreign countries. That's how Mathew Emmert does it, and he's already beating the market by 10 percentage points.

To view Mathew's favorite income stocks, enjoy a free 30-day trial of Income Investor. And if you click here right now, you'll be able to access this month's two new picks when they are released at 4:00 this afternoon. There is no obligation to subscribe.

This article was originally published on June 29, 2005. It has been updated.

Tim Hanson owns shares of none of the companies mentioned. At The Fool, no writer is too cool for disclosure ... and Tim's pretty darn cool.