Make Millions ... With Dividends?

We can think of lots of ways to make millions of dollars: Win the lottery, make a killing in real estate, hit it big on Wall Street. As we run these scenarios, the lowly dividend rarely crosses our minds. 

But it should.

When we do think about getting rich via the stock market, we usually imagine finding stocks with explosive growth rates. Check out how a $10,000 investment would have grown over the past decade with these outfits:

Data: Yahoo! Finance.

With stocks like those, it seems hard not to make money. But it's difficult to know which small companies will actually deliver on their promise. I still invest a modest portion of my own dollars in small caps, but for the most part, I'm aiming to make my millions in a more gradual, and reliable, way: healthy, growing dividend-paying stocks.

The case for dividends
Consider these eye-popping facts:

• In a 2003 Financial Analysts Journal article, editor Robert D. Arnott, drawing on long-term stock market data from G. William Schwert and Jeremy Siegel, found that between 1802 and 2002, a $100 investment in the stock market would have grown to $459 million. (This assumes no taxes and no fees.) On an annualized basis, that averages out to 7.9%. And amazingly, five percentage points of that 7.9% came from dividends, easily dwarfing the contribution from stock appreciation, dividend growth, and inflation effects.
• As my colleague Shannon Zimmerman explained in "The Secret of Dividends," "Between January 1926 and December 2006, 41% of the S&P 500's total return was due not to the price appreciation of the stocks in the index, but to the dividends its companies paid out."
• And as Mathew Emmert explained, "The S&P 500 index jumped from about 100 points to 1,250 points -- more than a 1,000% increase -- from 1980 through 2005. That's a hefty bull market. And during that time, dividend payers outperformed non-payers by more than 2.6 percentage points per year."

Finding winners
Clearly, dividend payers can significantly boost your portfolio -- and making millions with them is no far-fetched scenario:

Source: Moneychimp.com.

There's no guarantee you'll be able to average 12% or even 10% growth, though it is possible. But if you save aggressively, choose your investments carefully, and constantly sharpen your financial knowledge over the years, you can improve your odds of doing well.

With dividend stocks, you want both a sizable yield and robust dividend growth. A dividend that seems low now might still be an acceptable option, if the company that pays it has a history of steadily increasing that payout year after year. In contrast, a yield that seems too good to be true usually is. Astronomical yields often come from companies in trouble.

Need a few candidates to kick off your research? I've rounded up a handful of companies with solid yields and promising growth:

Data: Motley Fool CAPS.

If you think you don't have the time, interest, or the skills to seek out the most promising dividend stocks, we'll be happy to help. If you'd like to see the dividend payers our team at Motley Fool Income Investor has recommended, including the six stocks they think you should "Buy First" to make up the core of your dividend portfolio, you can try the service free for 30 days. Click here for all the details -- there's no obligation to subscribe.

Here's to making a million -- or more! -- with dividends.

Longtime Fool contributor Selena Maranjian owns shares of Chesapeake Energy, Intuitive Surgical, and Coca-Cola. Chesapeake Energy, Coca-Cola, and UnitedHealth Group are Motley Fool Inside Value choices. Intuitive Surgical is a Motley Fool Rule Breakers recommendation. UnitedHealth Group is a Motley Fool Stock Advisor pick. Coca-Cola is a Motley Fool Income Investor pick. The Fool owns shares of Chesapeake Energy and UnitedHealth Group. The Motley Fool is Fools writing for Fools.