So there I was, innocently looking up some historical annual returns for the S&P 500, when I came across a table filled with eye-opening information. See if you can spot what's caught my attention:

Year

Total Return

Dividend Component

Dividend Component of Total Return

2008

(37.0%)

1.5%

(4.0%)

2007

5.5%

2.0%

35.8%

2006

15.8%

2.2%

13.8%

2005

4.9%

1.9%

38.9%

2004

10.9%

1.9%

17.4%

2003

28.7%

2.3%

8.0%

2002

(22.1%)

1.3%

(5.7%)

2001

(11.9%)

1.2%

(9.7%)

Data: Standard & Poor's.

Feast your eyes on that last column! I could scarcely believe how much of the S&P 500's total return routinely comes from dividends. We often think of dividends as the sleepy product of our grandparents' investments -- but that picture couldn't be further from the truth. Over the past eight decades, reinvestment of dividends has contributed more than 40% of the S&P 500's return.

Why you should love payouts
You should be hopelessly devoted to dividends for a bunch of reasons:

  • They point to healthy companies. If a company is generating more money than it can effectively employ, it can choose to pay out some of that to shareholders.
  • They're in it for the long haul. When paid by a healthy, growing company, dividends will keep rewarding you every year, no matter what the overall economy or the stock price is currently doing.
  • They often keep growing. Companies tend to increase dividends over time, so your annual dividend return on your initial investment is likely to keep expanding. Ending up with yields of 20% or more on your original investment is not unheard of.
  • They make a big difference. Just look at the table above. Dividends make up a substantial part of many stocks' ultimate returns.

The best dividend hunting grounds
To seek out the most compelling dividend payers, try kicking off your research with a screen for potential payout candidates. Below, I've rounded up  some companies that popped up when I consulted our 150,000-member CAPS community of investors for stocks rated with four or five (out of five) stars, and had yields of 2.5% or more. (I've also included how much you'd make in dividends alone this year, if you divided a $100,000 portfolio between these stocks.)

Company

CAPS Rating (out of 5)

Recent Dividend Yield

5-Year Avg. Annual Dividend Growth

Annual Payout on $12,500 Investment

ExxonMobil (NYSE:XOM)

****

2.5%

9.2%

$313

Procter & Gamble (NYSE:PG)

*****

2.8%

11.2%

$350

PepsiCo (NYSE:PEP)

*****

2.9%

17.0%

$363

PPL

****

4.7%

11.4%

$588

Lockheed Martin (NYSE:LMT)

****

3.3%

22.1%

$413

Kraft Foods (NYSE:KFT)

****

4.1%

9.2%

$513

Caterpillar (NYSE:CAT)

****

3.2%

17.1%

$400

Pfizer (NYSE:PFE)

****

3.9%

11.4%

$488

Total

     

$3,428

Data: Motley Fool CAPS.

Note that $3,422 total above -- a generous income that you could easily reinvest in more stocks. If that average yield of 3.4% increases by just 8% annually, in 20 years, you'd be raking in $15,850 per year in dividends -- and your initial $100,000 investment would likely be worth a lot more. See? I told you dividends were powerful!

However you conduct your search for healthy dividend payers, don't give up until you've found them. Otherwise, you're leaving valuable returns on the table. If you'd like some help in your hunt for powerful payouts, consider our Motley Fool Income Investor newsletter. A free 30-day trial will give you all its researched recommendations, including its six "Buy First" stocks. Click here to learn more.

Longtime Fool contributor Selena Maranjian owns shares of PepsiCo and Procter & Gamble. Pfizer is a Motley Fool Inside Value selection. PepsiCo and Procter & Gamble are Motley Fool Income Investor picks. The Fool owns shares of Procter & Gamble. The Motley Fool is Fools writing for Fools.