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9 Stocks That Prove Dividends Make All the Difference (Update1)

(Story updated to add W.W. Grainger is entering Brazil with an acquisition.)

BOSTON ( TheStreet) -- Some folks think chasing dividends is, well, a bit stodgy and more for the conservative investor or one with retirement coming up.

But dividends can do surprising things to spice up returns over time, thanks to the power of compounding.

That point is proven by S&P Indices' Senior Index Analyst Howard Silverblatt. He reports that the S&P 500 Total Return Index, which includes both stock gains and dividends, reached an all-time high at 2,449.1 Monday, displacing the October 9, 2007, record of 2,447.

The new record represents a rise of 0.1% from peak to peak in roughly 4 1/2 years. And what makes up that gain for the index? Well, the equity value of it is down 9.3%, while the dividend portion returned 9.4%, which means dividend returns kept the index above water.

Put simply, $10,000 invested in the S&P 500 Total Return Index on Oct. 9, 2007, was worth about $10,008 Monday, made up of $9,066 in stock value and $942 in dividends.

With that in mind, I screened Morningstar's database of dividend-oriented funds, including the Vanguard Dividend Appreciation ETF (VIG), which selects only companies that increase their dividends for 10 consecutive years for its portfolio, to find some of the top-returning, high-quality dividend-paying stocks of the past five years.

The results prove that you don't have to be a dividend drudge or alternately swing for the fences for the latest hot stock to get optimal returns. But, rather, you ought to look for stocks with the potential for steady share-price appreciation coupled with a stable dividend.

I found nine stocks that exhibit that sort of balance, and all more than doubled in value within the past five five years with total returns even better than that of dividend stalwart International Business Machines' (IBM - Get Report) 18.3% five-year average total return.

And just as important, they passed dividend fund managers' scrutiny for quality.

As a reference point, a $10,000 investment in IBM shares five years ago would be worth $24,172 today.

The top stock is that of Stepan Co. (SCL - Get Report), which has a 29.3% annualized total return over the past five years. That means that $10,000 invested in its stock five years ago would be worth $36,840 today.

And who would have guessed that tiny Bank of the Ozarks ( OZRK ) could also beat out mighty IBM in terms of returns? But it did with an 18.4% five-year average annual total return.

Here are summaries of nine high-quality, steady dividend-paying companies in inverse order of their total returns over the past five years:

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