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? Well, high-quality dividend payers can be just the kind of day-in and day-out all-star that 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.

Unilever (NYSE:UL), for example, has beaten the S&P 500 by 27 points since February 2005, and it is currently rewarding investors with a 5.4% yield. Or consider California Water Services (NYSE:CWT), which has topped the S&P by 65 points since September 2003, atop a current 3.1% 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 130,000-plus members of our CAPS community:

Source: CAPS. 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 Coca-Cola.

Does my dividend have a glass jaw?
The last thing we want in a dividend-paying company is the risk that the company will fall off a cliff and have to pull back its dividend. This usually ends up being a double whammy because not only do you lose your dividend payout, but many of the dividend-loving investors who own the stock will run for the hills, causing the stock price to fall.

With that in mind, there are three things I immediately consider when kicking the tires of a dividend payer -- dividend history, balance sheet strength, and cash flow.

If we want to talk about dividend history at Coke, we have to go all the way back before disco hit the scene, because Coke has been paying its shareholders for a long time. The beverage giant has also had a good track record of raising its payout -- for the decade ending in 2008, it upped its dividend per share more than 150%. So history is definitely on our side.

Coke's cash flow statement and balance sheet are as solid as you might expect from such a stable company. Free cash flow comfortably exceeds the dividend obligation and has allowed the company to buy back billions in stock. And while Coke's balance sheet does sport more than $12 billion in debt, its interest payments are well covered, and it has a $7 billion cushion of cash and marketable securities.

What the bulls say
Coke has been an investor favorite for a long time, and that means it's been hard to find it anywhere near a reasonable valuation. At 17 times trailing earnings per share, Coke still is priced at a premium to the rest of the market, but it's much more reasonable than the multiples in the 30s and 40s it was fetching earlier in the decade.

Most members of the CAPS community who have been bearish on Coke have cited the stock's valuation, as well as the potential for the rest of the market to have more of a rebound than Coke as we exit the recession. As the stock's four-star CAPS rating suggests, though, the bears are in the minority when it comes to Coke. Early last month, baidewei took it back to the basics when giving Coke a thumbs-up:

Coke is a company I can understand. They make a product that peopel (myself included) want to purchase. They earn money and they pay a dividend. We could get into details about free cash flow and payout ratios...yeah :) I want to jump on down to MY bottom line: "Is it a company that is strong, understandable, and pays a dividend?" For me, [Coke] fulfills the requirements.

Get into the action
You can check out who else has been bullish on Coke, as well as 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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