5 Dynamic Dividend Stocks

The New York Yankees of the '50s and the Chicago Bulls and Dallas Cowboys of the '90s had one crucial element in common: consistent excellence in their organizations and performance. That's a rare accomplishment, but if you think it could never occur in your portfolio, think again. Carefully chosen dividend-paying stocks could be your key to superstar returns.

Build the next investing dynasty
These long-haul outperformers can help you build your fortune, as studies from investing gurus such as Jeremy Siegel have shown time and time again. Finding them is our Motley Fool Income Investor service's mission.

Health Care REIT (NYSE:HCN), for example, has returned 98% since October 2003, and it's currently rewarding investors with a 5.2% yield. Or consider Chunghwa Telecom (NYSE:CHT), which has returned 42% since May 2005, atop a current 6.2% yield. While these stocks happen to be Income Investor recommendations, you don't need to be a subscriber to get these great gains.

Identify new talent
With the help of Motley Fool CAPS, we'll search for the best dividend-paying stocks around. Here are several dividend picks that have also earned high ratings from the 115,000-plus members of our CAPS community:

Source: Capital IQ, Yahoo!Finance, and CAPS as of Aug. 15.

Any one of these quality companies would add some dividend excellence to your portfolio, but I thought I'd kick off further research with a closer look at Motley Fool Income Investor recommendation American Capital.

That whopping dividend
Go ahead and ask -- I know you want to. "Is that 19% dividend for American Capital a typo?" Nope. And furthermore, it's not some backward looking one-time dividend payout that won't be repeated. On Aug. 5, when American Capital reported earnings, it also declared a fat $1.05 quarterly dividend, and forecast $4.19 in total dividends per share for 2008.

Efficient-market buffs would say there's a huge amount of risk accompanying a massive dangling carrot like this. I say it looks like a darn good opportunity. The market is still running scared, avoiding nearly anything to do with finance. As an alternative asset manager, the uncertainty surrounding the value of American Capital's holdings has most investors picking up that proverbial 10-foot pole.

Now, don't get me wrong -- there's certainly risk here. In the second quarter, the company had to take unrealized writedowns on some of its portfolio, ultimately reporting a loss. In total, the net asset value of American Capital's portfolio has dropped 19% since December. However, investors who take the plunge today not only stand to collect that sweet 19% dividend, but can also purchase the stock at a 16% discount to the current NAV, giving them some cushion against further declines in portfolio value.

CAPS member BigPapiRoach is one of the 1,630 American Capital bulls on CAPS. He recently weighed in on the stock, concluding that:

[American Capital] has been unduly hurt by the sub prime, mortgage and credit woes decimating the financial service stocks. As a BDC, [American Capital] invest in a diversified portfolio of companies with little exposure to the real estate crisis. The credit crunch and resulting lower valuations should prove beneficial to [American Capital] in being able to invest at attractive valued opportunites. The high dividend, [funded] through 2009, provides strong downside protection.

Get into the action
You can see who else has been bullish on these stocks, and chime in with your own thoughts, by heading over to CAPS. You may also want to check out a few of the other top-rated dividend payers above while you're there.

Dividend stocks could help you transform your portfolio from the flash-in-the-pan Florida Marlins into the dependable New York Yankees. And if you hate the Yankees, it's probably because they're so darn good, so darn often.

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