Savvy investors know that the stock market's no place to take wild risks. The nearly 40% drop of 2008 has surely taught most investors just how badly the market can punish the reckless and inattentive.

Fortunately, we can still make good money in stocks without giving up exciting gains, thanks to healthy dividend payers. They may seem less exciting than the hot stocks of the day, but studies show that it's hard to beat their long-term performance.

Better performers
Dividends are more compelling than most people realize. Professor Jeremy Siegel of Wharton Business School found that the S&P 500's 100 highest-yielding stocks outperformed the overall index by three percentage points annually from 1957 to 2003.

The folks at Ned Davis Research, meanwhile, found that between 1972 and 2009, companies that increased their dividends or simply began paying them averaged annual returns of 8.7%, while the overall S&P 500 averaged 6.2%, and non-payers averaged just 0.7%.

Sifting for the best
With so many dividend-paying companies on the market, it can be hard to figure out which ones will serve you best.

If you're stumped on where to start, consider seeking dividends in the strike zone. These stocks' yields are neither too high (which can signal an unsustainable payout, or a fallen stock in trouble) nor too low. These dividends should also grow over time -- but not too slowly or too quickly.

Once you find stocks fitting those criteria, add a few other indicators of strength. The following strike zoners offer returns on equity (ROE) of at least 12%, and market caps of $1 billion or more -- both additional signs of business stability:


Recent Yield

5-Year Avg. Annual Div. Growth Rate


National Grid (NYSE: NGG) 6.3% 10% 34%
Paychex (Nasdaq: PAYX) 4.5% 19% 35%
Xilinx (Nasdaq: XLNX) 2.4% 29% 22%
McDonald's (NYSE: MCD) 3.1% 27% 37%
United Parcel Service (NYSE: UPS) 2.8% 8% 41%

Source: Capital IQ, a division of Standard & Poor's and Yahoo! Finance.

These are all appealing companies in different ways. McDonald's is a familiar giant that has managed to grow its earnings briskly despite its mammoth size, offering both a value menu and premium products such as coffees and smoothies.

National Grid powers much of the U.K and has a strong presence in the U.S. It's also investing in solar and wind power, positioning itself to profit from moves toward alternative energies.

Paychex, meanwhile, profits from companies' decisions to outsource their payroll and many other administrative functions. As interest rates rise, it's likely to make more money off its "float" -- the customer payments it carries until it disburses them.

United Parcel Service's fortunes are closely tied to the state of the economy, but it's less volatile than the overall market. As we (eventually) move from bust to boom, this package-shipper will prosper more.

Finally, Xilinx is involved in several promising technologies, including 3-D televisions and high-speed wireless networking systems.

In perspective
Some contenders in your list may meet your screening criteria, but lose their luster once you look deeper. Garmin (Nasdaq: GRMN), for instance, seems rather attractive, with a decent 2.6% yield that's tripled since 2005. But many investors reasonably worry that its best days may have passed it by, as GPS devices shift from novel gadgets to a commodified standard in cars and smartphones.

On the flip side, you don't have to be too rigid when doing your screening. Companies that just miss the cut might still make worthy investments. Monsanto (NYSE: MON) doesn't have the highest return on equity, at 10%, but it's struggled over the past few years, with competition growing for its Roundup weedkiller and more seed sales disappointing. At 1.8%, its yield might not be exciting, but it's been growing at 30% annually, and many investors retain high hopes for this giant in the agriculture world.

Find your winners
Terrific dividend payers with a history of substantial payout increases await you everywhere -- and right now, many come with bargain-basement price tags.

If you don't want to find them on your own, let our real-money Million Dollar Portfolio lend a hand. Our team brings you the best stock ideas from all our newsletter picks, including a bunch of solid dividend payers. (One pays a 3.2% yield that's risen by more than 40% annually over the past five years.) Simply enter your email in the box below to find out more.

Longtime Fool contributor Selena Maranjian owns shares of McDonald's, National Grid, and Paychex. Paychex is a Motley Fool Inside Value recommendation. National Grid and United Parcel Service are Motley Fool Income Investor recommendations. Motley Fool Options has recommended a synthetic long position on Monsanto. The Fool owns shares of United Parcel Service. The Motley Fool is Fools writing for Fools.