Dividend stocks outperform non-dividend-paying stocks over the long run. It happens in good markets and bad, and the benefit of dividends can be quite striking -- dividend payments have made up about 40% of the market's average annual return from 1936 to the present day.

But few of us can invest in every single dividend-paying stock on the market, and even if we could, we're likely to find better gains by being selective. Today, Wal-Mart (NYSE:WMT) and United Parcel Service (NYSE:UPS), two companies that have come to symbolize different aspects of the new globalized retail economy, will square off in a head-to-head battle to determine which offers a better dividend for your portfolio.

Tale of the tape
Founded in 1962, Wal-Mart(NYSE:WMT) is the world's largest retailer, and ranked as the world's second-largest public corporation on the Fortune Global 500 list in 2013. The company operates more than 11,000 stores under 69 banners in 27 countries, and also maintains e-commerce websites in 10 countries. The Arkansas-based colossus is perhaps more responsible than any other company for changing the way America shops, as its supply chain advancements have helped set the standard for globally-oriented retail operations for decades. However, Wal-Mart has also become a symbol of the purported evils of globalism, as these same supply chain advancements have spurred the growth of sweatshop labor in the developing world while simultaneously crowding smaller local retail enterprises out of many communities.

Founded in 1907, United Parcel Service(NYSE:UPS) is the world's largest package-delivery company by revenue and volume, and is a global supply chain leader, making it an ideal complement to Wal-Mart's retail operations. UPS delivers roughly 1.8 million packages each business day to over 200 countries and territories. and also provides supply chain solutions to customers in over 175 countries and territories. In its last few decades, UPS has expanded enormously through the acquisition of nearly 40 companies, which have included retail shipping services, trucking and air freight, and international trade services.



United Parcel Service

Market cap

$257 billion

$93.7 billion

P/E ratio



Trailing 12-month profit margin



TTM free cash flow margin*



Five-year total return 



Source: Morningstar and YCharts.
* Free cash flow margin is free cash flow divided by revenue for the trailing 12 months.

Round one: endurance (dividend-paying streak)
Wal-Mart is one of investors' favorite dividend stocks because it's paid uninterrupted dividends for a period of 39 years since initiating payment in 1974. That's an easy win for Wal-Mart over UPS, which only began paying quarterly dividends in 1999, according to Dividata.

 Winner: Wal-Mart, 1-0.

Round two: stability (dividend-raising streak)
According to Dividata, UPS has been increasing its dividend at least once per year since 2010, after holding steady in 2009 during the global financial crisis. On the other hand, Wal-Mart has raised its dividend payments every year since 1975, which works out to 38-year dividend-raising streak. This is even more lopsided in Wal-Mart's favor than the first contest.

Winner: Wal-Mart, 2-0.

Round three: power (dividend yield)
Some dividends are enticing, but others are merely tokens that barely affect an investor's decision. Have our two companies sustained strong yields over time? Let's take a look:

WMT Dividend Yield (TTM) Chart

WMT Dividend Yield (TTM) data by YCharts

Winner: United Parcel Service, 1-2.

Round four: strength (recent dividend growth)
A stock's yield can stay high without much effort if its share price doesn't budge, so let's take a look at the growth in payouts over the past five years.

WMT Dividend Chart

WMT Dividend data by YCharts

Winner: Wal-Mart, 3-1.

Round five: flexibility (free cash flow payout ratio)
A company that pays out too much of its free cash flow in dividends could be at risk of a cutback, particularly if business weakens. We want to see sustainable payouts, so lower is better:

WMT Cash Dividend Payout Ratio (TTM) Chart

WMT Cash Dividend Payout Ratio (TTM) data by YCharts

Winner: United Parcel Service, 2-3.

Bonus round: opportunities and threats
Wal-Mart may have won the best-of-five on the basis of its history, but investors should never base their decisions on past performance alone. Tomorrow might bring a far different business environment, so it's important to also examine each company's potential, whether it happens to be nearly boundless or constrained too tightly for growth.

Wal-Mart opportunities

United Parcel Service opportunities

Wal-Mart threats

United Parcel Service threats

One dividend to rule them all
In this writer's humble opinion, it seems that Wal-Mart has a better shot at long-term outperformance, as its aggressive expansion plans in emerging markets have helped offset domestic weakness. However, the company's once-indomitable supply chain advantage has eroded, and a shift to online retail could ultimately tip UPS into the lead as more consumers decide that they'd rather have their purchases delivered from a nearby warehouse instead of bagged up at a checkout line. You might disagree, and if so, you're encouraged to share your viewpoint in the comments below. No dividend is completely perfect, but some are bound to produce better results than others. Keep your eyes open -- you never know where you might find the next great dividend stock!