At the very mention of gold, images of value, stability, and growth pop into my head.

It's not hard to understand why. For decades, the precious metal has been marketed as an attractive investment and a great way to hedge inflation, recession, and almost every other economic bogeyman.

In spite of its allure in volatile times such as these, the true long-term performance of gold lags stocks by a significant margin. But investors don't need to give up the shiny lure of stability to earn better returns in stocks. Some stocks out there are as good as gold -- and many are even better.

Chasing shiny trinkets
As a new investor, I was drawn to growth. This led me to buy -- or seriously consider buying -- shares in tech darlings such as EMC (NYSE:EMC), SanDisk (NASDAQ:SNDK), and Brocade Communications (NASDAQ:BRCD) in the late 1990s. But while these stocks were shinier than gold for a while, the luster wore off after the bubble burst in 2000. Each stock shed more than 80% of its value in the ensuing years.

These companies weren't poor businesses. But the fundamental conditions just didn't support their stratospheric share prices at the time. I would have been far better off had I understood what demented guru Jeremy Siegel pointed out in his book, The Future for Investors: Regular investments in stable, dividend-paying stocks are ultimately the best place for long-term cash.

You can have it all
Dividend payments to shareholders are a significant stabilizing factor in a stock's return. They help smooth out the ups and downs of the market over time, and they indicate that the company is generating cash. Just like gold, steady dividends protect investors from bear markets. But even better than gold, dividends also help boost returns.

For instance, look at the long-haul performance of these dividend-paying stocks:


20-Year Performance

Procter & Gamble (NYSE:PG)


Johnson & Johnson

1,264 %

Altria (NYSE:MO)


Home Depot (NYSE:HD)




S&P 500




Now, lest I be accused of cherry-picking these examples, consider this: The Vanguard Windsor II (VWNFX) fund, our proxy for stocks with above-average yields, returned a market-beating 395% over the trailing two decades.

Each company above had a long operating history in a relatively stable sector, providing investors a defensive edge with low long-term risk. Even with the price of gold soaring to new highs -- and the recent pummeling of companies like AT&T in the past few years -- the table above shows that many dividend-paying stocks can still leave gold in the dust over extended time frames. And the difference is even more dramatic as you look at longer time frames.

Consistent dividend payments to shareholders, even during the sort of economic tough times we're enduring today, have made many of these companies long-term winners. This cash yield helps boost shareholder returns in the company, because more shares are purchased when the stock is depressed. One crucial point, though: To realize the full benefits that these stocks provide, investors must reinvest the dividends.

Regain your luster
Dividend-paying stocks give investors the ability to survive years of market turmoil, and through reinvesting, to make more money along the way. That's about the best hedge imaginable against economic bogeymen.

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This article was originally published on July 18, 2007. It has been updated.

Fool contributor Dave Mock still has a soft spot for gold, but satisfies it with dividend stocks. The longtime Fool owns shares of Johnson & Johnson in a direct investment account. The Home Depot is an Inside Value selection. Procter & Gamble and Johnson & Johnson are Income Investor recommendations. Vanguard Windsor II is a Champion Funds pick. The Fool owns shares of Procter & Gamble. The Motley Fool's disclosure policy is pure 24-karat, through and through.