At the very mention of gold, images of value, stability, and growth pop into my head.

It's not hard to understand why. For decades, the precious metal has been marketed as an attractive investment and a great way to hedge inflation, recession, and almost every other economic bogeyman.

In spite of gold's allure in volatile times such as this, the true long-term performance of gold lags stocks by a significant margin. But investors don't need to give up the shiny lure of stability to earn better returns in stocks -- there are stocks that are as good as gold. In fact, many are even better.

Chasing shiny trinkets
As a new investor, I was drawn to the allure of growth. This led me to buy -- or seriously consider buying -- shares in tech darlings such as Dell (NASDAQ:DELL) and Hewlett-Packard (NYSE:HPQ) at the height of speculation in 2000. But while these stocks were shinier than gold in the few years leading up to the millennium, the luster soon wore off. Stock in each company shed more than 50% of its value in the year following and only Hewlett-Packard has made significant progress in recovering since.

These computing stalwarts aren't necessarily poor businesses -- the fundamental conditions just didn't support the share price at the time. I would have been far better off had I understood what demented guru Jeremy Siegel pointed out in his book, The Future for Investors: Regular investments in stable, dividend-paying stocks are ultimately the best place for long-term cash.

You can have it all
Dividend payments to shareholders are a significant stabilizing factor in a stock's return, because they help smooth out the ups and downs of the market over time, and they indicate that the company is generating cash. Just like gold, steady dividends protect investors from bear markets. But even better than gold, dividends also help boost returns.

For instance, look at the long-haul performance of these dividend-paying stocks:


20-Year Return

McDonald's (NYSE:MCD)


ConocoPhillips (NYSE:COP)


Boeing (NYSE:BA)


General Electric (NYSE:GE)


Coca-Cola (NYSE:KO)


S&P 500




Now, lest I be accused of cherry-picking these examples, consider this: The Vanguard Windsor II (VWNFX) fund, our proxy for stocks with above-average yields, returned a market-beating 467% over the trailing 20 years.

Each company above had a long operating history in a relatively stable sector, providing investors a defensive edge with low long-term risk. Even with the dramatic increase in the price of gold in the last few years, the table above shows that dividend-paying stocks leave gold in the dust over extended time frames.

To their advantage, many of these companies have maintained (and sometimes even raised) dividend payments to shareholders -- sometimes even during down economic cycles. This consistency of a cash yield helps boost shareholder returns in the company, because more shares are purchased when the stock is depressed. One crucial point, though: To realize the full benefits these stocks provide, investors must reinvest the dividends.

Regain your luster
Dividend-paying stocks give investors the ability to not only survive years of market turmoil, but, through reinvesting, to make more money along the way. That's about the best hedge against economic bogeymen there is.

If you're short on time or ideas, the Motley Fool Income Investor service is a great place to find dividend payers -- the average recommendation is beating the S&P by 4 percentage points and offers more than a 4% yield. You can click here for a free, 30-day trial to see the team's top dividend stocks for right now.

This article was originally published on July 18, 2007. It has been updated.

Fool contributor Dave Mock still has a soft spot for gold, but satisfies it with dividend stocks. The longtime Fool owns no shares of companies mentioned here. Coca-Cola and Dell are Motley Fool Inside Value selections. Vanguard Windsor is a Champion Funds choice. The Motley Fool's disclosure policy is pure 24 karat, through and through.