Following the worst stock market year since the Great Depression, it's natural for investors to seek more stable and less stressful stock strategies. Dividend-paying stocks provide you with an opportunity to achieve both.

Among other things, dividend-paying stocks:

  • Are less volatile as a group than their non-dividend-paying counterparts.
  • Provide you with a real return right away; with non-dividend-paying stocks, returns aren't realized until you sell.
  • Allow you to choose what to do with the cash payouts -- reinvest in the stock, put them into savings, or buy groceries ... it's up to you.
  • Offer you an inflation hedge when companies increase their payouts.

Fortunately for us, the S&P 500 currently yields 1.9%. This downturn has led to dividend yields not seen since the mid-1990s.

With this in mind, I've set out to find 10 of the most promising dividend-paying stocks for the next decade and beyond. Five of them will be focused on dividend growth, while the other five will be focused on stocks with higher yields. You want to have a helping of both types in your portfolio to promote both payout growth and payout stability.

Dividend growth
High dividend yields are always nice right away, but smart long-term income investors will also plant the seeds for future dividend growth. These stocks may not have the juiciest yields on the market, but they generate more than enough free cash flow to boost their payouts and reinvest in the business for years to come.


Dividend Yield

5-Year Trailing
Dividend Growth Rate

Free Cash Flow
Payout Ratio

United Technologies (NYSE: UTX)








Automatic Data Processing (NYSE: ADP)








Honeywell (NYSE: HON)




Source: Capital IQ, a division of Standard and Poor's.

High yield
Super-high dividend yields can be very tempting -- all a stock yielding 10% has to do is not lose value, and you've made 10% in one year! In more cases than not, however, a stratospheric yield is a bad sign for the stock.

Since dividend yields and stock prices move in opposite directions, a high yield usually means a depressed stock price based on market concerns about the underlying business. Remember: Dividends are not guaranteed, so you need to make sure the business is generating enough cash to pay the dividend, or else your investment loses its luster.

The yields on the following five stocks are more than 50% higher than the S&P average of 1.9%. They may not grow as fast as the previous five stocks, but they have enough free cash to fully fund their high yields.


Dividend Yield

Free Cash Flow Payout Ratio




Paychex (Nasdaq: PAYX)



Philip Morris International



Genuine Parts (NYSE: GPC)



Eli Lilly (NYSE: LLY)



Source: Capital IQ, a division of Standard and Poor's.

Reach for the sky, but diversify
With stock prices still down and dividend yields up, now is the perfect time to double down on dividends and build a lower-cost, lower-stress stock portfolio worthy of holding for the next decade and beyond.

There are plenty of great businesses with rich dividend histories trading with yields we haven't seen in years, but in addition to owning a few "dividend growth" and "high-yield" stocks, please remember to diversify your picks across various sectors. As we learned with the implosion of the financial sector last year, no matter how nice the dividends are, you never want to put all your eggs in one basket.

If you're looking for more dividend stock ideas, our Motley Fool Income Investor service can help. Advisor James Early and the Income Investor team recommend both stocks with high yields and those focused more on dividend growth. At present, their picks yield 4.6% on average and have outperformed the S&P by nearly five percentage points on average since the service's inception in 2003.

A 30-day trial of Income Investor is free. If you'd like to learn more about the service, just click here.

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This article was originally published Jan. 22, 2009. It has been updated.

Todd Wenning thinks Blades of Steel hockey on the NES was way ahead of its time. He owns shares of Philip Morris International, a Motley Fool Global Gains recommendation. 3M, Microsoft, and Paychex are Inside Value picks. Automatic Data Processing, Genuine Parts, and Paychex are Income Investor recommendations. The Fool has a disclosure policy.