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 3 percentage points each year on the back of dividends; he earned 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 foundation
Wal-Mart has been one of the market's best-performing stocks 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 Ingersoll-Rand (NYSE:IR), which has paid a dividend in every quarter since 1919. Johnson Controls (NYSE:JCI), another substantial outperformer, has paid consecutive dividends since 1887. More incredibly, UGI (NYSE:UGI) has paid dividends for 121 consecutive years and has raised its dividend 18 straight years. Not only did these dividends put money into shareholders' pockets, but they also indicated that executives were confident in the future and that their business models were generating substantial amounts of cash.

These are good companies now, but 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 Oshkosh Truck. The boring old Wisconsin-based truck maker is up more than 40% per year (including dividends) over the past 10 years. Compare that performance with that of such big-name non-payers as Agilent (NYSE:A), Tenet Healthcare (NYSE:THC), and Foster Wheeler (NASDAQ:FWLT) -- three companies that simply have failed to create significant, 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. And 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 Oshkosh Truck -- both dividend and capital-gains growth opportunities. That means they're:

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

Search for these traits and don't ignore boring industries -- utilities, insurers, consumer products, banks -- or even foreign countries.

That's how James Early does it, and his Motley Fool Income Investor subscribers are besting the market by nine percentage points while assuming less risk of capital loss. To view all of James's favorite income stocks, be his guest at Income Investor free for 30 days. There is no obligation to subscribe.

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

Tim Hanson does not own shares of any company mentioned. Microsoft and Wal-Mart are Motley Fool Inside Value recommendations. No Fool is too cool for disclosure.