You tell me: Would you pay $60,000 for a shower curtain ... for someone else?

Sounds crazy, but if you bought Tyco (NYSE:TYC) back in the day, you already did. If you bought WorldCom, Enron, or Adelphia Communications, you did a far sight worse. You're not alone.

Here's why I ask ...
This guy I know flies into town once every few months, and that's how he greets me -- with that ridiculous shower-curtain question. What did I expect?

He's a dividend kook. So he browbeats me over my guns-a-blazin' investing style, about how I am begging Mr. Market to take my money because I stupidly refuse to get paid to invest.

And you know what's worse? Deep down, I know he's right. If I'd listened to this very same dividend mantra my first time around, I'd be a wealthier man today. I certainly would have slept better. Here's why.

"Agency conflicts" are robbing you blind!
Let's face it: Corporate execs act in their own interests, not ours. And as a result, the more of our cash we let them keep, the more likely they will waste it on gaudy buildings, useless acquisitions, corporate jets, and, yes, $60,000 shower curtains.

Yet we blindly assume these geniuses can handle the cash their (our!) businesses generate. That's what "Mr. Enron," Ken Lay, wanted you to believe. And Tyco's Dennis Kozlowski and the Rigas family who shook down Adelphia. In fact, this couldn't be further from the truth.

A professor named Michael Jensen even suggests that managers waste all free cash flow under their discretion. Yikes! Little wonder Professor Jensen isn't surprised that high stock prices and low dividend-payout policies set the stage for the scandals and perp walks that ended the great bull market. Are you?

What can you do to stop the madness?
You can insist that your stocks pay dividends. That way, you can keep your CEO out of the news and enjoy fatter returns. Because Professor Jensen is right on when he says, "Dividend payments enhance share value by preventing managers from wasting money on negative net-present-value projects."

Or take it from my favorite investor, Peter Lynch, who in his classic One Up on Wall Street, is ruthless. "Companies that don't pay dividends," says Lynch, "have a sorry history of blowing the money on a string of stupid diversifications."

Shower curtains ... stupid diversifications? Choose your poison. Or do yourself a favor and get some of that money back.

This refresher course in agency conflicts comes courtesy of Mathew Emmert -- that fellow I was telling you about. Mathew knows more about dividend stocks than anybody else I know, and he pounds the table constantly to his Motley Fool Income Investor subscribers. (You can hear it in his own words by taking a 30-day free trial.) But as I said, I've heard it before.

Dividends are like money in the bank
Some years back, I worked for a cantankerous old chap who worshipped dividends as the Holy Grail of investing. The year or so I spent with that guy was the most miserable of my working life. For context, here are some odd jobs I have worked:

  1. Performed data entry of financial-aid forms
  2. Graded fifth-grade student essays
  3. Recorded books on tape
  4. Taught poetry writing to prisoners
  5. Worked as a janitor in synthetic blood lab

You see my point.

Anyway, this one guy loved waving around these bar charts showing the returns you could have earned over the years on stocks like Coca-Cola (NYSE:KO) or ExxonMobil (NYSE:XOM). One bar showed you "capital appreciation," or your "profits" when you sold. It was short and squat. A second bar, representing your returns with dividends reinvested, towered over it like a skyscraper, at least 10 times the size.

Don't tell me you're an income investor!
Those charts were creepy, but I wish I had listened. To rub it in, I ran some numbers using Ibbotson data. Turns out, if you had invested $10,000 in Ibbotson's large-cap universe back in 1980, you could cash out today for about $130,000. Nice.

But get this: Had you reinvested the dividends along the way, you'd be sitting on more than $400,000. And remember, that universe includes grind-it-out utilities, but also some screamers like Bank of America (NYSE:BAC) and Citigroup (NYSE:C), not to mention a handful of tight-pursed techies like Intel (NASDAQ:INTC) and Oracle (NASDAQ:ORCL) that never pay out.

So, apparently, dividends do matter. Big stocks have done well overall since 1980, no matter how you slice it. You can see that clearly from our example. But you can also see that earning, and then reinvesting, those dividends can make the difference between just doing well and quietly amassing a fortune.

What to do now
Don't get me wrong, I still love my small-cap portfolio. But I need some balance. More importantly, if you haven't made your IRA or Roth contribution this year, the clock is ticking. I know I'm looking for the perfect dividend stock this year. This way, I can get the full tax-advantaged benefit reflected in that hideous skyscraper -- over the next 30 years. I think I'll see what Mathew's got.

You can, too. For a time, you can try Mathew Emmert's Motley Fool Income Investor service for 30 days. The trial's free, and there's no obligation or pressure to actually join. While you're there, take a look at all his past picks and ask him how the heck he's beating the market -- with a conservative portfolio of safe stocks.

I'd ask him myself, but that shower-curtain bit is getting old. To learn more about you can beat the market with dividends, click here to start your free trial now.

This article was originally published on June 2, 2005. It has been updated.

Fool writer Paul Elliott owns shares of Bank of America -- an Income Investor pick you can learn more about with yourfree trial. Coca-Cola is a Motley Fool Inside Value recommendation. The Motley Fool isinvestors writing for investors.