"Do you know the only thing that gives me pleasure? It's to see my dividends coming in."

-- John D. Rockefeller

In one of my previous jobs, I helped manage a group of large individual investment portfolios. Some, in fact, were nine figures.

The biggest investing lesson I took from studying those successful portfolios was: Buy dividend-paying stocks and, most importantly, buy them early.

See, these portfolios contained long-term winners like Fortune Brands (NYSE:FO) which, in most cases, had been bought decades before and were now paying out tens of thousands of dollars in annual dividend income.

The owners of the portfolios didn't close their eyes, pick stocks like Fortune Brands out of a hat of blue chips, and hope for the best. They took the time to learn about and select companies with sustainable business models, and long track records of increasing shareholder value through capital gains and dividend growth.

That extra effort to hand-pick the perfect dividend stocks paid off for them, and they're reminded of their wise decisions each quarter when their dividend checks roll in.

Your turn to build a dividend dynasty
Not all dividend stocks are created equal, however. Witness the slashed dividends from stocks like Wachovia and MBIA (NYSE:MBI) this year -- they serve as harsh reminders that dividend payments are not guaranteed. That's why it pays to study the company's free cash flow and payout ratio to make sure it can continue to pay dividends.

Before we get into all of that, however, let's get you a few dividend stocks to research. To get you started, we'll get help from both the 105,000 investors participating in Motley Fool CAPS and the new CAPS stock screener, and find dividend-paying stocks with:

  • Return on equity greater than 10%
  • A dividend yield greater than 3%
  • A four- or five-star CAPS rating.

Here are a few of the results:


CAPS Rating
(out of 5)

Dividend Yield

Southern Copper (NYSE:PCU)



Royal Bank of Canada (NYSE:RY)



H.J. Heinz (NYSE:HNZ)



Dominion Resources (NYSE:D)



ING Groep NV



Data from Motley Fool CAPS and Yahoo! Finance as of May 22.

These stocks are promising, but note well: This is not a list of formal recommendations. Instead, use it as a starting point for further research.

What's to like?
When it comes to dividend-paying stocks, investors aren't necessarily interested in high-growth, nor should they expect it. What's appealing about dividend stocks is they can provide income and earnings growth -- some might say it's the best of both worlds. Let's see why investors like these five dividend stocks.

Southern Copper: The Fool's TMFSinchiruna has high expectations for copper prices and  recently noted:

The only evidence we need to know that copper will continue to go higher is the lengths that countries and mega-corporations are going to ensure future copper reserves / supply. Teck Cominco buying Global Copper the other day. Chinalco and Alcoa (NYSE:AA) joining forces to buy shares of Rio Tinto.

Royal Bank of Canada: The largest Canadian bank has held up well amid the global credit crunch. In December 2006, theknife251 thought the bank was flying under investors' radars:

This pick will appeal to Fools Income players. It's big, its global and it provides a 3% dividend every year! Not too mention its averaging a five year 18 % return. A sleepy but exciting buy and hold pick.

So far at least, this player's pick is outperforming the S&P by 14 percentage points.

H.J. Heinz: Even when the going gets tough, people still need to eat. That's the tack taken by lquadland10, who in January proclaimed, "This is my stagnation play. One will always need food."

Dominion Resources: On a similar note to lquadland10's point about food, people also need energy regardless of economic conditions. On the Dominion page, earthStrapped came across the stock using a screener and thinks it has potential:

Another screened stock. Dividend solid over last 5 years, price to cash flow ratio better than industry average, as is return on equity. Looks like a solid performer in what I see as a virtually never-ending growth sector.

ING Groep: The Dutch bank has made strong inroads into the U.S., Asia, and the rest of Europe and has rebounded 30% since it hit its 52-week low in February. Statman42 may have had the right idea in January, saying the stock had "Terrific value, good growth," but was a month early with the call. Nevertheless, the player's pick is outpacing the S&P 500 by 6 percentage points.

What do you think about these stocks? Do you disagree with their ratings? CAPS' 105,000 investors are waiting to hear what you think. So sign up today. CAPS is 100% free and guaranteed to educate, amuse, and enrich.