(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) 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), 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:
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV