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 it first declared one in 1974. That's proof positive that a dividend doesn't hamper growth.

Another great long-term investment has been PPG Industries (NYSE:PPG), which has paid a dividend every year since 1899 and has increased its payment every year since 1971. Over the past 20 years, PPG Industries has posted 14.1% compound annual growth. Another substantial out-performer, Gannett (NYSE:GCI), started paying a dividend as soon as it went public in 1967. The company boasts a 20-year compound annual growth rate (CAGR) of 11.7% -- and that's after accounting for its 33% plummet since the beginning of 2004. If you had held until then (and yes, you should sell even dividend stocks eventually), you would have had 15.1% annual growth! Both numbers are market-beating -- the market returned a mere 9.4% over the same time period. And then there's McDonald's (NYSE:MCD), a company with 50 years of history that started paying a dividend in 1976. That's a 30-year track record, and in the past three years, McDonald's has nearly tripled its payout. The company has another 12.9% market-beating trailing 20-year CAGR.

The dividends in these examples did two things. First, they put real money into shareholders' pockets. Not promises, but cold hard cash. They also indicated that management was confident that their business models were generating substantial amounts of cash.

Twenty years ago, these companies could have been the foundation of your dividend dynasty -- a source of financial security for you and your family for years to come. 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 National City (NYSE:NCC). The boring old Cleveland-based bank is up more than 16% per year since 1990. Compare that performance with those of such big-name non-payers as Sanmina-SCI (NASDAQ:SANM), PowerwaveTechnologies (NASDAQ:PWAV), or even behemoth Corning (NYSE:GLW) -- three tech companies that simply haven't been generating cash and creating long-term shareholder value.

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: cold hard cash. That allows 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 like National City -- both dividend and capital gains growth opportunities. That means they're:

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

Say it again: Underfollowed, undervalued, underappreciated, and committed to creating shareholder value. That's the dividend dynasty recipe for success. 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 his subscribers are besting the market by two percentage points while assuming less risk.

To view more than 50 of Mathew's favorite income stocks, enjoy a free 30-day trial of Motley Fool Income Investor. And for a limited time, a subscription will get you a free copy of Stocks 2006: The Investor's Guide to the Year Ahead.

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

Tim Hanson does not own shares of any company mentioned. Microsoft is a Motley Fool Inside Value recommendation. At the Fool, no writer is too cool for disclosure ... and Tim's pretty darn cool.