I'm delighted that dividend stocks are back in vogue on Wall Street. But because they seem to be everywhere nowadays, it's become increasingly difficult for investors to separate the true winners from the losers. If you've mastered the basics of dividends and want to plan your next move, here are eight red-hot dividend stocks that deserve their massive popularity.

The state of the market
The rumors you've heard about the economy are true. Consumer sentiment is at its lowest point since the depths of the Great Recession. Home sales remain at levels comparable to the early 1980s. And unemployment is stuck at 9.1% -- or 16.2%, if you factor in people who have stopped looking for work.

Not surprisingly, the market has responded in kind. Speculators have abandoned stocks in favor of gold and Treasury bonds. The corresponding increase in demand for these products has put massive pressure on their prices. Gold prices have reached or approached all-time highs, and Treasury yields are lower than they've been since the 1940s.

Source: Yahoo! Finance and indexmundi.com.

Is there nowhere left to hide?
This concern couldn't be further from the truth -- you just need to know where to look. Indeed, for only the second time since the 1950s, the average dividend yield on the S&P 500 is higher than the 10-year Treasury bond. Investors accordingly face the opposite problem -- namely, that there are too many amazing dividend stocks to choose from.

The best two that come to my mind are the real estate investment trusts Annaly Capital Management (NYSE: NLY) and American Capital Agency (Nasday: AGNC), which my colleague Dan Dzombak recently highlighted in an article about the 25 highest-yielding REITs. The magnificence of their yields is clear when you compare them to alternative income investments, which I've done below.

Source: Yahoo! Finance, The Wall Street Journal, bankrate.com.

If REITs aren't your thing

Although their dividend yields aren't as impressive as the two previously mentioned REITs, the market's so-called sin stocks -- i.e., cigarette manufacturers -- have both above-average dividend yields and solid financials. As the following table demonstrates, all of them have positive net profit margins, healthy free cash flows, and growing earnings per share.


Dividend Yield

Profit Margin

2010 FCF

5-Yr. EPS Growth

P/E Ratio

Vector Group (NYSE: VGR) 8.55% 6.46% 44 0.07% 19.30
Altria Group (NYSE: MO) 6.14% 14.37% 2,599 (13.70%) 16.19
Reynolds American 5.72% 15.70% 784 6.37% 16.12
Universal Corp. (NYSE: UVV) 4.84% 6.27% 15 10.22% 7.82
Lorillard (NYSE: LO) 4.72% 17.07% 1,051 10.80% 15.08
Philip Morris (NYSE: PM) 3.75% 11.43% 8,724 8.06% 15.62

Source: Finviz.com and RobotDough.com.

As a bonus, they're all reasonably priced, trading at multiples at or near the market's average of 16. The biggest concern with these companies, of course, is the health and headline risks associated with the production of cigarettes. But as my colleague, Jim Royal, recently pointed out, these risks have been around since the 1970s and these companies continue to do just fine.

An embarrassment of riches
The final place I would look for great dividend stock recommendations is our free report, "13 High-Yielding Stocks to Buy Today." It profiles companies that pay great dividends, yet still fly under the market's radar. By buying in now, you could make money on the underlying shares and collect big, fat quarterly dividend checks, all in the same investment.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.