Beat the Market for Generations

So far in 2006, at least two notable things have happened in the market:

1. The Dow Jones Industrial Average hit its all-time high, surpassing the mark it hit seven years ago.
2. Corporate cash holdings are at record highs.

The more things change .
Collectively, then, large corporations have record levels of cash.

So why do investors continue to put their faith (not to mention the bulk of their portfolio dollars) in the next big things? And why do scores of very smart people ignore the one component -- cash -- that is guaranteed to increase the value of their stock?

I've written before about the importance of cash. Cash matters so much because it's what you invest when you buy shares of a company. It's what the companies themselves need to expand their operations. It's what they generate -- if they're profitable. Most importantly, it's what you should expect to get back, when all is said and done, either from selling your shares or from dividend streams.

Show me the money!
Those dividends really power your portfolio over the long haul. Each payment may be small, but over time, they add up to great things. Compounded income growth over time is how true fortunes are made. Plus, thanks to dividends, you get to:

• Be tangibly rewarded for your financial risks
• Maintain the ownership positions that brought you those rewards
• Increase your stake in some of the world's greatest companies

... all without spending an additional dime out of your pocket.

Which is why markets like these are so exciting for those of us at Motley Fool Income Investor. With stocks breaking new highs, share buybacks don't make a lot of sense, and acquisitions are pricey, too. With so much cash burning a hole in corporate pockets and so little good use for it internally, that leaves just one legitimate way to use the money: dividends.

Recent hikes
In response to the prevailing market conditions, the smartest companies out there have actively raised their dividends this year. Take a look:

That percentage change is the raise you would have received simply by being a shareholder. With hikes like that, it becomes abundantly clear why dividends are so important for investors looking to beat the market over the long haul. Join us today for your 30-day free trial of Income Investor to start taking advantage of the trend toward higher payouts.

At the time of publication, Fool contributor Chuck Saletta owned shares of Johnson & Johnson and Intel, and his wife owned shares of Harley-Davidson. Johnson & Johnson is an Income Investor recommendation. Intel is an Inside Value recommendation. The Fool has a disclosure policy.