Leading the Vanguard Windsor Fund, John Neff beat the market by more than 3 percentage points per year for more than 30 years. That's an incredible track record -- and the difference between $39,116 and $17,449 on a $1,000 investment, assuming a 10% average return. Here's the master's secret: Two of those 3 percentage points came from dividends. So while Neff worked hard to buy cheap stocks, dividends were no less crucial to his outsized returns. That's totally cool!

To help find totally cool stocks that offered value and income, Neff used his total return ratio, defined as:

Total Return Ratio = (analysts' expected earnings growth rate + dividend yield) / price-to-earnings ratio

Neff would compare company ratios to the market's ratio. If a company's ratio was at least 50% greater than the market's, he gave it a look. If Neff's research revealed that the market misinterpreted the company's prospects, and thus created an opportunity, he purchased shares for the portfolio.

Currently, the market's total return ratio is about 0.95. (I used a Shiller P/E of 20.1, a yield of 2%, and two-year estimated earnings growth of 17.2%.) So to meet Neff's criteria, a company's ratio must be greater than 1.43.

Let's see whether American Eagle Outfitters (NYSE: AEO) might be a total return opportunity:

Company

2-Yr Growth Est.

Yield

P/E

Total Return Ratio

American Eagle Outfitters

23.5%

3.5%

16.6

1.63

Abercrombie & Fitch (NYSE: ANF)

51%

1.9%

37.0

1.38

J. Crew Group (NYSE: JCG)

20.3%

0%

15.1

1.34

Source: Capital IQ, a division of Standard & Poor's, and author's calculations.

According to the numbers in the table, American Eagle Outfitters looks more attractive than competitors Abercrombie & Fitch and J. Crew Group. It pays a higher dividend than both competitors while offering growth at a reasonable price. That's a great combination.

The Foolish bottom line
Neff's total return ratio is beautiful because it combines value and income: cheap stocks with dividend kickers. Investors can profit from multiple expansion while collecting dividend payments along the way. And as Neff showed, when done correctly, this strategy can lead to excess returns over the market. As with any metric, Neff's total return ratio is just a starting point. But with a total return ratio of 1.63, American Eagle Outfitters certainly seems like a totally cool stock to get to know.

Million Dollar Portfolio associate advisor David Meier does not own shares of any of the companies mentioned. He does know that Motley Fool Income Investor has plenty of great ideas that can generate excellent total returns. You can take a trial here. The Motley Fool has a disclosure policy.