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. Because there's nothing worse than knowing you'd be doing better by doing nothing.

But you face 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.

Greatest growth: Fueled by dividends
Master investors such as 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, too, can build one.

Building your dividend dynasty
Wal-Mart has been one of the market's best-performing stocks, up nearly 100,000% since its initial public offering. Furthermore, 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 General Electric (NYSE:GE), which has paid a dividend every year for more than 100 years, and has increased its payout every year for 31 years. Over the past 20 years, GE has beaten the market by nearly six percentage points annually, returning 15.6% per year. Kellogg (NYSE:K), another outperformer, started paying a dividend way back in 1925. The company has returned 10.5% per year for the last 20. And then there's Avery Dennison (NYSE:AVY), a company with 70 years of history, which has grown its dividend 13% annually over the past 31 years. The company has another market-beating annual return of 13.1% for the trailing 20 years. 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 the respective 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. Former 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 Motley Fool Income Investor recommendation Southern (NYSE:SO). Compare its long-term performance against such big-name non-payers as Juniper Networks (NASDAQ:JNPR) and Symantec (NASDAQ:SYMC). Southern's returns are not only better (and that chart does not include the effect of reinvested dividends), they also come without the heart-wrenching volatility.

Great long-term investments are companies with rising earnings per share, limited dilution, manageable debt, and a consistent ability to deploy capital and use assets effectively. That leads to the richest treasure of all: cash. And that allows a company to reward shareholders with a growing dividend, which can be reinvested in a larger and larger ownership stake.

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

The cornerstones of tomorrow's dynasty
Tomorrow's dividend dynasties are both dividend and capital gains growth opportunities. They're:

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

Search for these four simple traits, and don't ignore boring industries -- utilities, insurers, consumer products, banks -- or even foreign countries. James Early and Andy Cross put this strategy to work each and every day for his Income Investor subscribers. To view their favorite income stocks, click here to join 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, Wal-Mart, and Symantec are Motley Fool Inside Value recommendations. No Fool is too cool for disclosure.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.