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 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 like Snap-on (NYSE:SNA) and Paychex (NASDAQ:PAYX), which have grown their quarterly dividends 20% and 158%, respectively, since 2003, I used the Fool's new CAPS screening tool.

Below are five companies rated to outperform the market by more than 100 All-Stars -- Motley Fool CAPS members whose track records rank them in the top 20% of our 115,000-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 have outperformed the market on average by 7% per year. Five-star stocks did even better.



Dividend Yield

All-Stars Rating Outperform

Archer Daniels Midland (NYSE:ADM)

Food and beverage


247 out of 280

Altria (NYSE:MO)



1,546 / 1,589

Coca-Cola (NYSE:KO)

Food and beverage


1,078 / 1,134

Colgate-Palmolive (NYSE:CL)

Consumer goods


246 / 253

ConocoPhillips (NYSE:COP)



763 / 805

Data from Motley Fool CAPS, Yahoo! Finance as of Oct. 10, 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.

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. Snap-on and Johnson & Johnson are Motley Fool Income Investor picks. Coca-Cola is an Inside Value recommendation. Try any of our Foolish newsletters today, free for 30 days. The Fool's disclosure policy calls spikes.