Dividend stocks may be the best way to follow Warren Buffett's famous rules:

Rule No. 1: Never lose money.
Rule No. 2: Never forget rule No. 1.

But that shouldn't be surprising. Playing the part of the investor whose aim is to never lose money is to study businesses that rule boring industries, make real products, and earn heaps of cash flow. More often than not, these types of stocks also offer generous dividend yields.

Consider Buffett's portfolio. Nearly half the stocks held by Berkshire Hathaway yield more than the S&P 500 average of 1.7%. Here's a sampling:


Current Dividend Yield

SunTrust Banks (NYSE:STI)


Home Depot (NYSE:HD)


General Electric (NYSE:GE)


Johnson & Johnson


Wal-Mart (NYSE:WMT)


Sources: SEC filings, Yahoo! Finance.

Get 97% of the market's returns automatically
Surely, some of this is coincidence. Berkshire has billions to invest. Buffett and curmudgeonly partner Charlie Munger are unlikely to buy stock in anything but the largest large caps, and large caps are always more likely to pay dividends.

Nevertheless, research conducted by Dr. Jeremy Siegel shows that 97% of the stock market's return from 1871 to 2003 can be traced to dividends. I think we can fairly give superinvestors like Buffett and Munger credit for following a smart strategy even if they don't follow it to the letter. Buffett and Munger, you see, don't reinvest dividends as Siegel's research suggests you should. They've done better by investing cash from dividends into their best ideas.

But what's good for them isn't necessarily good for you. That's why many of America's millionaires are buying, holding, and reinvesting in the stocks of sturdy businesses that have a history of increasing their dividend payouts. It's a no-brainer way to get rich. And I mean really rich.

Consider PepsiCo (NYSE:PEP) or H.J. Heinz (NYSE:HNZ), which transformed $1,000 into $866,000 and $635,000, respectively, over 56 years of reinvesting dividends. That's more than a half-century of 15.5% and 14.8% average annual returns, making Pepsi and Heinz two of the market's most enriching long-term performers. Thank you, dividends.

From Buffett's portfolio to yours
I'll not pretend that owning dividend-paying stocks makes you like Buffett or Munger. It doesn't. But isn't it nice to know that if you do choose to invest in cheap dividend payers, you're in good company?

That's how my Foolish colleagues James Early and Andy Cross see it. As lead advisors for Motley Fool Income Investor, they seek stocks that pay substantial dividends but also trade for a discount to their real worth.

Four of their current selections are also Buffett picks, including Johnson & Johnson. Take a 30-day free trial to Income Investor today to discover the identities of the other three. There's never an obligation to subscribe.

This article was originally published on Sept. 10, 2007. It has been updated.

Fool contributor Tim Beyers owned shares of Berkshire Hathaway at the time of publication. The Motley Fool also owns shares of Berkshire. Johnson & Johnson and Heinz are Income Investor picks. Berkshire Hathaway is an Inside Value pick and a Stock Advisor recommendation. Home Depot and Wal-Mart are also Inside Value selections. The Motley Fool's disclosure policy wants to say something witty here but hasn't had its coffee yet. (Yawn.)