The CAPS Screen: 5 All-Star Dividend Stocks

I've noted before that dividend investing is a tried-and-true strategy for building long-term wealth. In fact, a study by Ned Davis Research found that dividend-paying stocks have outperformed their stingier counterparts 10% vs. 4% annually from 1972 to 2006.

In other words, you can generate sizable investment returns even during times of market turmoil if you can identify dividend stocks that will set you for life.

To find dividend studs such as General Electric (NYSE:GE) and US Bancorp (NYSE:USB) -- both of which have total returns of more than 13% annually over 20 years -- I used the Fool's new CAPS screening tool to look for companies that pay a strong dividend.

Below are five companies rated to outperform the market by more than 100 CAPS All-Stars -- members whose track records rank them in the top 20th percentile of our 110,000-member investing community.

These stocks also have:

• Market caps greater than $1 billion.
• Dividend yields greater than 1%.
• Five-star ratings, the highest possible, from our CAPS community.

Since we began tracking the collective intelligence of our CAPS investment community in November 2006, five-star companies have outperformed, with an average annualized gain of more than 12%

Data from Motley Fool CAPS, Yahoo! Finance, and ADR.com as of Aug. 7, 2008.

Remember, this screen is only a starting point in the research process. When selecting dividend payers, Fools know it's important to make sure a company has sufficient free cash flow to sustain and grow its dividends for years to come.

Come and join us on Motley Fool CAPS to dig into these companies further. Let our 110,000-strong (and counting!) CAPS community help you make better stock selections.

For more Foolery:

• The World's Best Dividend Stocks
• The Wall Street Myth That Could Destroy Your Portfolio
• The CAPS Screen: 5 Dividend Dynamos