Dividend stocks may be the best way to follow Warren Buffett's famous rules:

Rule No. 1: Never lose money.
Rule No. 2: Never forget rule No. 1.

But that shouldn't be surprising. Playing the part of the investor whose aim is to never lose money is to study businesses that rule boring industries, make real products, and earn heaps of cash flow. More often than not, these types of stocks also offer generous dividend yields.

Consider Buffett's portfolio. Plenty of the stocks held by Berkshire Hathaway yield more than the S&P 500 average of about 3.2%. Here's a sampling:


Dividend Yield

American Express (NYSE:AXP)


Coca-Cola (NYSE:KO)




Kraft Foods (NYSE:KFT)


ConocoPhillips (NYSE:COP)


Constellation Energy (NYSE:CEG)


Wells Fargo (NYSE:WFC)


Sources: SEC filings, Yahoo! Finance.

Get 97% of the market's returns automatically
Surely, some of this is coincidence. Berkshire has billions to invest. Buffett and curmudgeonly partner Charlie Munger are unlikely to buy stock in anything but the largest large caps, and large caps are always more likely to pay dividends.

Nevertheless, research conducted by Dr. Jeremy Siegel shows that 97% of the stock market's return from 1871 to 2003 can be traced to dividends. I think we can fairly give superinvestors like Buffett and Munger credit for following a smart strategy, even if they don't follow it to the letter. Buffett and Munger, you see, don't reinvest dividends as Siegel's research suggests you should. They've done better by investing cash from dividends into their best ideas.

But what's good for them isn't necessarily good for you. That's why many of America's millionaires are buying, holding, and reinvesting in the stocks of sturdy businesses that have a history of increasing their dividend payouts. It's a no-brainer way to get rich. Really rich.

From Buffett's portfolio to yours
I'll not pretend that owning dividend-paying stocks makes you like Buffett or Munger. It doesn't. But isn't it nice to know that if you do choose to invest in cheap dividend payers, you're in good company?

That's how my Foolish colleague James Early sees it. As lead advisor for Motley Fool Income Investor, James seek stocks that pay substantial dividends but also trade for a discount to their real worth.

Several of its current selections are also Buffett picks, including UPS and Kraft. Take a 30-day free trial to Income Investor today to discover the identities of the others. There's never an obligation to subscribe.

For more on dividends:

Dan Caplinger updated this article, originally written by Tim Beyers and published Sept. 10, 2007. Dan owns shares of Berkshire Hathaway. UPS and Kraft Foods are Motley Fool Income Investor selections. Coca-Cola, Berkshire Hathaway, and American Express are Motley Fool Inside Value selections. Berkshire Hathaway is a Motley Fool Stock Advisor pick. The Fool owns shares of Berkshire Hathaway and American Express. Try any of our Foolish newsletters today, free for 30 days. The Fool has a disclosure policy.