We've noted before that dividend investing is a tried-and-true strategy for building long-term wealth. In fact, a study by Ned Davis Research found that dividend-paying stocks have outperformed their stingier counterparts 10% vs. 4% annually from 1972 to 2006.

In other words, you can generate sizable investment returns, even during times of market turmoil, if you can identify dividend stocks that will set you for life.

With that in mind, we used the Fool's CAPS screening tool to look for companies that pay a strong dividend. Below are seven companies rated to outperform the market by more than 100 All-Stars -- CAPS members whose track records rank them in the top 20th percentile of our 145,000-member investing community.

These stocks also have:

  • Market caps greater than $1 billion.
  • Dividend yields greater than 2%.
  • Five-star ratings, the highest possible, from our CAPS community.



Dividend | Yield

All-Stars Rating Outperform | Underperform

PepsiCo (NYSE:PEP)

Consumer Staples

0.45 | 2.96%

1,076 | 24

Johnson & Johnson (NYSE:JNJ)

Health Care

0.49 | 3.04%

3,025 | 57

Proctor & Gamble (NYSE:PG)

Consumer Staples

0.44 | 2.87%

1,762 | 22

Waste Management (NYSE:WM)


0.29 | 3.52%

457 | 9

Linn Energy (NASDAQ:LINE)


0.63 | 9.55%

242 | 4

Data from Motley Fool CAPS and Google Finance as of Dec. 22, 2009.

Remember, this screen is only a starting point in the research process. When selecting dividend payers, Fools know it's important to make sure a company has sufficient free cash flow to sustain and grow its dividends for years to come.

Come and join us on Motley Fool CAPS to dig into these companies further. Let our 145,000-strong (and counting) CAPS community help you make better stock selections.

PepsiCo and Johnson & Johnson are Income Investor recommendations. Proctor & Gamble is an Income Investor and a Pro recommendation. Waste Management is an Income Investor and an Inside Value recommendation. Total SA and ONEOK are Income Investor recommendations. The Fool has a disclosure policy.