The power of dividend investing is pretty well-known these days. Higher-yielding stocks tend to offer higher returns over time than low- or no-yield stocks, according to research from Jeremy Siegel and others. In fact, the 20 best-performing survivor stocks from the original S&P 500 in 1957 are all dividend payers.

What's more, reinvesting dividends acts as a "bear-market protector and return accelerator," according to Siegel. The extra shares purchased and accumulated at higher dividend yields during down periods act as a protector in falling markets, and these extra shares rising in value turn into a "return accelerator" when prices rise.

As the recent economic crisis illustrated all too well, however, you can't buy just any high-yielding stock. Dividends that get cut or suspended entirely can wreak havoc on a stock price -- and thus, your portfolio. And since today we're dealing with relatively low-yielding/high volatility tech stocks, we have to be on our toes.

Fortunately, there are steps you can take to lessen your chances of buying one of these train wrecks. James Early, advisor of our Motley Fool Income Investor service, suggests looking at the payout ratio, for starters. That's simply the percentage of a company's net income used to pay its dividend. Obviously, the higher the payout ratio, the tougher it is for a company to meet its dividend obligation. James looks for a payout ratio less than 80% for safer companies, and a sub-60% or even sub-50% payout for companies you consider risky.

To further stack the odds on your side, you can limit your search to companies that have grown their dividend over the past three years or so. That eliminates the less stable or erratic dividend payers.

I constructed a screen to find some promising high-yield, low-risk tech stocks for further research. I made sure the stocks met the following criteria:

  • Market cap > $1 billion.
  • Payout ratio < 60%.
  • Three-year dividend growth > 0%.
  • Tech sector, as defined by Capital IQ.

Here are the top 10 highest yielders the screen produced:               

Company

Market Cap
(in millions)

Payout Ratio

3-Year Cumulative
Dividend Growth

Dividend Yield

Intel (Nasdaq: INTC)

116,246

32

40

3.5

Automatic Data Processing (Nasdaq: ADP)

22,969

56

48

3.1

National Semiconductor

3,323

27

60

2.9

Broadridge Financial Solutions

2,723

43

375

2.8

Linear Technology (Nasdaq: LLTC)

7,851

48

32

2.7

KLA-Tencor (Nasdaq: KLAC)

6,638

34

37

2.5

Analog Devices (NYSE: ADI)

11,385

35

19

2.3

Microsoft (Nasdaq: MSFT)

240,154

22

34

2.3

Xilinx (Nasdaq: XLNX)

7,512

30

52

2.2

Harris

5,829

19

90

2.2

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

These stocks are great places to start your research, but they're not formal recommendations.

What this means
Siegel sums it up nicely in his book, The Future for Investors: "Bear markets are not only painful episodes that investors must endure, but also an integral reason why investors who reinvest dividends experience sharply higher returns."

Whether in bear or bull markets, there's a reason why the top-performing stocks over the decades are all dividend payers. If you're lacking that type of exposure in your portfolio, you should take the first steps now toward finding stable dividend payers designed to weather any market cycle.

Fool analyst Rex Moore likes dividend-paying tech stocks and owns shares of Linear Technology and Microsoft. Xilinx is a Motley Fool Big Short short-sale recommendation. Intel and Microsoft are Motley Fool Inside Value picks. Linear Technology is a Motley Fool Stock Advisor selection. Automatic Data Processing is a Motley Fool Income Investor selection. The Fool owns shares of and has bought calls on Intel. Motley Fool Alpha has opened a short position on Xilinx. Motley Fool Options has recommended buying calls on Intel. Motley Fool Options has recommended a diagonal call position on Microsoft. The Fool owns shares of Broadridge Financial Solutions and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.