5 Dynamic Dividend Stocks

Ruth. Jordan. Montana. You don't have to be a sports fan to recognize those names, and there's a very good reason for that. All three of these athletes made magic happen whenever they competed. Even more importantly, when the chips were down, you could still count on these guys to deliver.

In times of economic turmoil, wouldn't it be great to have a performer like that in your portfolio? High-quality dividend payers can be just the kind of day-in and day-out all-star you're looking for.

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. At the same time, they can provide a solid defense against crazy market conditions. Finding them is the mission of our Motley Fool Income Investor service.

California Water Service, for example, has beaten the S&P 500 by 96 points since September 2003. Right now, it's rewarding investors with a 2.7% yield. Or consider Diageo (NYSE:DEO), which has topped the S&P by 35 points since April 2004, atop a current 4.9% 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 125,000-plus members of our CAPS community:

Sources: Capital IQ, a division of Standard & Poor's; Yahoo! Finance; and CAPS as of Jan. 29. All yields listed are trailing and may not reflect recent corporate actions.

If you like what you see, but want more, you can run this screen for yourself with CAPS' handy screener. While these are not formal recommendations, they're a great place to kick off further research and potentially add some dividend excellence to your portfolio. In fact, I'll even kick you off with some thoughts on Nike.

Does my dividend have a glass jaw?
Nike is anything but a new arrival to the dividend party. In fact, ever since the company hit the public markets, it's remembered to pad its shareholders' pockets with a dividend payout. Now that's a company that remembers who the owners are!

The question we need to tackle, though, is whether there is any danger to Nike's dividend, given the awful state of the economy. To answer this, we'll flip to Nike's cash flow statement. Over the 12 months ending in November, Nike produced $1.6 billion in cash from operations. Just $472 million of that was used for capital spending at the company, leaving roughly $1.2 billion to do all kinds of fun stuff -- such as pay its dividend and buy back shares.

Though the shoe giant paid a 7% higher dividend during this 12-month period than it did during its 2008 fiscal year (which ended in May), it still only paid out around $450 million of that $1.2 billion of free cash flow. That tells me that Nike has a good amount of cushion; even if tough times do take their toll, it'll take a pretty substantial hit before the company is forced to make tough decisions about the dividend.

What the bulls say
From the business perspective, the coming months will be challenging for Nike. When people are losing their jobs in droves, $100 pairs of basketball sneakers tend to vanish from the household budget. Of course, any squeeze the economy may put on the company is yet to come -- when the company reported its fiscal second quarter, it showed revenue and net income up 6% and 9%, respectively, from the prior year.

And with smaller competitors like Under Armour (NYSE:UA) feeling the pressure, there could be an opportunity for Nike to show its muscle. And by "muscle," I mean a brand that consistently ranks among the world's best, and a balance sheet that sports more than $2.7 billion in cash against less than $1 billion of debt.

But this is likely old news to CAPS members. Though Nike's stock hasn't quite reached five-star status, nearly 94% of all CAPS members who have rated the stock have picked it to outperform the S&P 500. SIP08PSU gave Nike a thumbs-up earlier this month, providing this supporting evidence:

Nike is a long-term hold based on its continually demonstrated strengths:
1. Strong Brand Image and Brand Loyalty
2. Strong supply chain to operate efficiently
3. Global company with international exposure
4. Extremely strong research and development
5. Dividend paying stock

Get into the action
You can check out 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 Bad News Bears to the Dream Team. And really, could you argue with having Michael Jordan, Magic Johnson, and Sir Charles Barkley helping your portfolio chalk up wins?

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