Like the Sunday newspaper, some things circuitously pay you when you pay for them: Plop down just 35 cents and get dollar-off coupons, shampoo samples, and a brand-new lining for your birdcage. The analogy with dividend-paying stocks is easy to draw: In addition to the potential for price appreciation, you get paid to invest in the form of the income these puppies throw off.

That payment can add up to serious money over time, too. Indeed, according to Standard & Poor's, between 1926 and the close of 2006, dividends accounted for nearly 41% of the S&P 500's return.

Then again ...
As beneficial to your portfolio as dividends can be, the number to watch with any investment is total return. Even a hefty annual payout of 5%, for example, would add up to just $50 over the course of a year on a $1,000 investment -- a relatively small sum, even after you factor in the additional moola you'd earn through compounding -- if compounding occurs. Notice that above I said potential for price appreciation. There's the potential for price erosion, too, and while a fat yield is nice, it's hardly a consolation prize when an investment turns sour.

Wachovia (NYSE:WB), Pfizer (NYSE:PFE), and Bristol-Myers Squibb (NYSE:BMY), for example, all sport yields that more double up on the S&P 500's. The thing is, for the 10 years that ended with May, each of those companies delivered a total return -- dividends included -- that lagged that of the S&P-tracking Vanguard 500 Index (FUND:VFINX). Walgreen (NYSE:WAG), Target (NYSE:TGT), and Qualcomm (NASDAQ:QCOM), meanwhile, pay comparatively modest sums, but all have spanked the market over the last 10 years. If you had to pick one group -- buttoned-down dividend-paying stalwarts or somewhat racier (and lower-yielding) overachievers -- which would you choose?

You can have it all
The good news is that it's not an either/or proposition. You can have both stock flavors with world-class mutual funds -- convenient investment vehicles that won't have you glued to your monitor all day watching the bouncing ball of a far-flung portfolio.

Here's the scoop: Funds make it relatively easy to assemble a whip-smart portfolio that provides carefully calibrated exposure to the full range of go-go growth stocks and income-generating big boys. And the process by which you select funds is infinitely more rational than choosing individual stocks. In a nutshell, smart fund shoppers will want to focus on three main criteria:

  1. Expenses -- the lower the better.
  2. Managerial tenure -- the longer the better.
  3. The fund's past performance on its current manager's watch.

The Foolish bottom line
There are other moving parts, of course, and at Champion Funds -- the Fool investing service that I head up -- we put 'em in motion each month toward the end of helping our members grow (and preserve) their nest eggs. We've gotten that job done, too: We have exactly one decliner -- which is off by less than 1% -- and as a group, our picks are up on the market by a double-digit margin.

If you'd like the inside scoop on our process -- and our winner's list -- click here for a completely free 30-day Champion Funds guest pass. In addition to our picks, you'll have access to our model portfolios -- a lineup that includes an aggressive model that has outperformed the S&P since its debut. Taken together, the funds that comprise the model sport an expense ratio of just 0.66% -- and the returns the portfolio has earned have more than covered that cost.

Shannon Zimmerman runs point on the Fool's Champion Funds newsletter service and co-advises Green Light with his pal Dayana Yochim. Pfizer is an Inside Value recommendation. You can check out the Fool's strict disclosure policy by clicking right here.