Dividend-paying companies are the oasis in the desert of underperforming stocks. They offer solid payouts today, and not simply the promise of gains tomorrow (though they do offer that, too!). In fact, dividend investing is such an attractive alternative that super-investor Warren Buffett has made it a significant component of his portfolio.

A great way to find outperforming dividend-paying companies is to examine the stocks in the "Dividend Achievers Select Index," an elite group of companies that have raised their dividends annually over at least the past 10 years. The list was created by Mergent and is now overseen by Indxis, which screens eligible stocks for liquidity and investability. The index features about 140 stocks for 2010.

In case you need further convincing that dividend investing is profitable: According to a study by Ibbotson, reinvested dividends made up about 40% of total stock returns from 1926 to 2006. And as I've argued elsewhere, dividends are the most secure way to build a cash-flow powerhouse.

So let's take a look at the top dividend achievers by yield in the capital goods industry. For context, I've also included their five-year annualized dividend growth rate.


Trailing Yield

5-Year Dividend Growth Rate

1. Harsco (NYSE: HSC) 3.3% 6.8%
2. Illinois Tool Works (NYSE: ITW) 2.8% 17.2%
3. General Dynamics (NYSE: GD) 2.6% 16.1%
4. Emerson Electric (NYSE: EMR) 2.5% 10.2%
5. Graco (NYSE: GGG) 2.4% 10.5%
6. Brady (NYSE: BRC) 2.4% 9.7%
7. 3M (NYSE: MMM) 2.4% 5.8%
8. United Technologies (NYSE: UTX) 2.3% 15.4%
9. Caterpillar (NYSE: CAT) 2.2% 14.5%
10. Pentair (NYSE: PNR) 2.2% 9.0%
11. Carlisle Companies (NYSE: CSL) 2.1% 6.8%
12. Dover (NYSE: DOV) 2.0% 10.2%
13. W.W. Grainger (NYSE: GWW) 1.8% (12.2%)
14. Tennant (NYSE: TNC) 1.8% 4.6%
15. Fastenal (Nasdaq: FAST) 1.6% 21.5%
16. Raven Industries (Nasdaq: RAVN) 1.6% 19.1%
17. Parker Hannifin (NYSE: PH) 1.5% 14.2%
18. A.O. Smith (NYSE: AOS) 1.4% 0.0%
19. Gorman-Rupp (AMEX: GRC) 1.4% 3.0%
20. Franklin Electric (Nasdaq: FELE) 1.4% 8.2%
21. Badger Meter (NYSE: BMI) 1.4% 11.4%
22. Universal Forest Products (Nasdaq: UFPI) 1.3% 32.0%
23. Nordson (Nasdaq: NDSN) 1.1% 3.5%
24. CLARCOR (NYSE: CLC) 1.1% 8.9%
25. Donaldson (NYSE: DCI) 1.0% 13.0%
26. Roper Industries (NYSE: ROP) 0.6% 12.1%

Source: Indxis.com and Capital IQ.

These are a handful of the thousands of public companies that can help you secure a third income for life. If you'd like to see which others make the cut, try Motley Fool Income Investor free for the next 30 days.

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