It's true that past performance is not indicative of future returns, but that doesn’t mean we can’t learn from it. By identifying key traits of investments that have worked well, we can narrow down our search for great stocks by seeking those traits in current opportunities.

Looking back at which stocks succeeded over the decade that ended in 2009 is a particularly intriguing and unique exercise, given that the S&P 500 was down over that period. Indeed, it was the first time the index had finished a calendar decade with a negative total return. To be fair, December 1999 was a particularly frothy starting point for the past decade, with technology and Internet companies trading at truly astronomical prices.

Still, most investors who put money to work 10 years ago have been disappointed with their returns (the disappointment larger the more they invested in

The horse is dead already
Yet for every "new" economy stock that got clobbered after the dot-com bubble burst, there were plenty of "old" economy stocks that were ripe for the taking in December 1999, when investors' attention was focused on Web clicks rather than cash-flow generation.

Given that the old-economy industries -- energy, industrials, commodities, railroads -- were largely in the mature phase of their business cycles by 1999, many of them paid dividends to boot. This made these undervalued, out-of-style stocks even more attractive as long-term investments.

To illustrate, I've gone back and identified the best dividend-paying stocks of the past decade, based on the following criteria:

  • The company had to pay dividends each year,
  • It was not allowed to cut or suspend the dividend at any point,
  • And it must be U.S.-based, trading on a major U.S. exchange.

I've further subdivided the results by 1999 market capitalization: large-, mid-, and small-cap.

The envelope, please
Here are the top five large-cap dividend payers of the past decade ...



Dividend-Adjusted Return (Dec. 31,1999, through Dec. 31, 2009)

Burlington Northern Santa Fe (BNI)



Southern Co. (NYSE:SO)



Altria (NYSE:MO)*



Union Pacific (UNP)



Caterpillar (NYSE:CAT)

Industrial Equipment


Data provided by Capital IQ. * Does not include spinoffs.

... the top five mid-caps ...



Dividend-Adjusted Return (Dec. 31, 1999, through Dec. 31, 2009)

EOG Resources (NYSE:EOG)



Occidental Petroleum (OXY)



Apache (APA)



Kinder Morgan Energy Partners LP (NYSE:KMP)



Public Storage (PSA)



... and the top five small caps.



Dividend-Adjusted Return (Dec. 31, 1999, through Dec. 31, 2009)

XTO Energy (XTO)



Walter Energy (WLT)



Holly (NYSE:HOC)



Precision Castparts (PCP)

Industrial Goods


Alliance Resource Partners LP (ARLP)



If you ever find yourself thinking that dividend-paying stocks can't possibly be growth stocks, remember these tables. This isn't an aberration, either. In fact, as a 2003 study by Robert Arnott and Clifford Asness showed, there's a link between higher dividend payouts and higher earnings growth. Why? One reason is that when company management teams are forced to dole out a portion of earnings each year as dividends, they have to be more deliberate in choosing value-creating projects and have less chance to "empire-build" with shareholder cash.

Time to reflect
Now that you know the best dividend stocks of the past decade, let's consider which ones might be the best in the next decade. If this exercise taught us anything, it's this: Start your search in out-of-favor industries and then find those companies that have enough cash flow to fund their payouts for years to come. Today, a good place to start is (gasp!) banks, which are certainly out of favor among investors at the moment.

While many investors are rightly concerned about commercial real estate exposure, increased government scrutiny, and dividend cuts in the industry last year, there are a number of select banks that have weathered the recession well and have maintained their dividend payouts. One name to start your search is Bank of Hawaii (BOH) -- it has a conservative investment portfolio to guard against rising interest rates and a sturdy Tier 1 capital ratio of 14.9% (by comparison, JPMorgan Chase's (NYSE:JPM) Tier 1 capital ratio is 11.1%). Oh, and it also yields 3.8%.

None of this is to say you should aggressively buy bank stocks or that there isn't downside risk if the economy takes another turn for the worse, but if you want to have a chance of owning one of the best dividend stocks of the next decade, banks are a good place to start.

If you'd like more help finding great dividend stocks, take a free 30-day trial of Motley Fool Income Investor, where 79% of our recommendations are beating the S&P 500 and have an average yield of 4.2%.

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Fool analyst Todd Wenning buys his athletic shoes from New Balance because it’s the only domestic manufacturer still making shoes in the U.S. He does not own shares of any company mentioned. Precision Castparts is a Motley Fool Stock Advisor pick. Alliance Resource Partners LP and Southern are Motley Fool Income Investor choices. The Fool owns shares of XTO Energy. The Fool's disclosure policy is American-made.