3 of the Best Dividend Stocks Revealed

When it comes to investing, it's hard to beat the remarkable power of dividends. According to a Morgan Stanley study, between 1930 and 2012, 42% of the S&P 500's return was a result of dividends. Data from the folks at Ned Davis Research, meanwhile, shows that between 1972 and 2012, dividend-paying stocks in the S&P 500 averaged annual gains of about 9.5%, versus only 1.6% for non-dividend payers. There are myriad dividend-paying stocks, though, so it's not always easy to decide which ones deserve your investment dollars. Definitely look for hefty payouts, but know that some steep dividend yields are the result of a plummeting share price and a company facing potentially lasting problems. So look beyond the yield itself and make sure the company is healthy, growing, and facing a bright future.

You may want to favor dividends that are being increased at a good clip over time, too, as that can turbocharge your results. If a stock is paying a dividend of $1 per share, and that dividend is increased by 10% annually over a decade, you'll eventually be collecting a payout of $2.59. Finally, look for a payout ratio that suggests the dividend is sustainable. Payout reflects the portion of earnings being paid out as dividends. A steep one -- typically greater than 80% or so -- suggests that the dividend may not be sustainable. A payout ratio of 82% is not necessarily damning, but a ratio of 30% to 60% is generally healthier. Three companies to consider are BlackRock (NYSE: BLK), Vodafone Group Plc (NASDAQ: VOD), and Qualcomm (NASDAQ: QCOM).

Source: Motley Fool

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