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.

In order to find dividend studs like Boeing (NYSE:BA), which has raised its dividend at a 17% rate over the past 5 years, and Kraft (NYSE:KFT), which according to Dr. Jeremy Siegel would have turned $1,000 into more than $2 million over 53 years -- that's a 15.4% yearly average, Fool -- 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 All-Stars, CAPS members whose track records rank them in the top 20th percentile of our 115,000-plus-member investing community.

These stocks also have:

  • Market caps greater than $2 billion.
  • Dividend yields greater than 2%.
  • Four- or five-star ratings from our CAPS community.

Since we began tracking the collective intelligence of our CAPS investment community in November 2006, four-star companies outperformed the market on average by 7% annualized. Five-star stocks did even better.



Dividend Yield

All-Stars Rating Outperform

Dupont (NYSE:DD)

Basic Materials


222 / 240

NYSE Euronext (NYSE:NYX)



394 / 418

PepsiCo (NYSE:PEP)

Consumer Goods


809 / 827

Quality Systems (NASDAQ:QSII)



691 / 706

Southern Copper (NYSE:PCU)

Basic Materials


698 / 729

Data from Motley Fool CAPS, Yahoo! Finance as of Sept. 29, 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 115,000-strong (and counting) CAPS community help you make better stock selections.

For more Foolery:

On Oct. 7, 2008, Fool Co-Founder David Gardner and his Motley Fool Pro team will invest $1 million in a portfolio designed to help you make money in any market. In the coming weeks, the team, relying heavily on proprietary CAPS "community intelligence" data, will establish long and short positions in a broad range of securities, including common stocks, publicly traded put and call options, and exchange-traded funds (ETFs). To learn more about Motley Fool Pro and to receive a private invitation to join, simply enter your email address in the box below.

Ilan Moscovitz doesn't own shares of any companies mentioned in this article. He thinks the CAPS screen is the new four square. Kraft is a Motley Fool Income Investor recommendation. Quality Systems is a Stock Advisor selection. NYSE Euronext is a Rule Breakers pick. The Fool's disclosure policy calls spikes.