NEW YORK (TheStreet) -- In September 2010, we set out to provide you, the investor, with a list of 10 dividend stocks most likely to outperform.

Happily, we did not disappoint.

Our 10 selections -- limited to the universe of Dividend Aristocrats (an index of companies that raised dividends for 25 years or more) -- managed to handily outperform the S&P Dividend Aristocrats ETF ( SDY).

Even more happily, our decemvirate outperformed the Dow Jones Industrial Average ( DIA), the S&P 500 ( SPY) and the ever-formidable Vanguard Total Stock Market Index ( VTSMX).

But a dose of humility is in order. Had it not been for the stunning outperformance of VF Corp. ( VFC), the remaining portfolio would have been entirely pedestrian. In this case, luck trumped foresight.

But there is an important lesson to be had: For the patient investor, time and inactivity can be powerful allies.

If a covered-call strategy been used to generate income against this portfolio, it's very likely that VF Corp. would have been called away, leaving the investor with a few quick bucks at the expense of an extraordinary (long-term) capital gain.

Sixteen months later, the patient investor could have chosen to divest from VF Corp. at a handsome profit and favorable tax treatment, reinvesting the profits into a more attractively valued stock (should such a stock exist).

To that end, the following 10 stocks are among the most attractively valued Dividend Aristocrats for 2012, also meeting the criteria that we established in 2010:
  1. Each stock must have a liability-adjusted cash flow yield* (using five-year average cash flow) greater than the yield of a 10-year U.S. Treasury note.
  2. Each stock must have a return on invested capital greater than 10% (using five-year historical data).
  3. Each stock must have appreciated in value over the past decade.
  4. Each company must have a five-year average tax rate greater than 25%.
  5. Each company must have a "quick ratio" greater than 1.

As always, model portfolios should not be treated as gospel; rather, use them as a starting point for your own research. Similarly, all investors should apply their own valuation and qualitative criteria to determine what constitutes a "good buy."

Lastly, if this author could always predict stock market winners, he would probably not be writing articles -- so please set your expectations accordingly.

*5-Year Avg. Free Cash Flow / ((Outstanding Shares x Per Share Price) + (Liabilities - Cash))

Because financial and insurance companies cannot be valued with a simple cash flow formula, those companies have been omitted from our consideration.

10. Brown-Forman

Liability Adjusted Cash Flow Yield: 3.40%

Dividend Yield: 1.74%

Return on Invested Capital: 26.06%

Avid imbibers are sure to recognize Brown-Forman's ( BFB) notable brands. In addition to Jack Daniels, the company also boasts Finlandia, Korbel, Southern Comfort and Chambord.

Though this stock is not "cheap," it continues to trade at a reasonable valuation, and management has long delivered impressive returns on capital. Shares of Brown-Forman have appreciated nearly 10,000% since 1978, and this figure does not include dividends distributed (let alone reinvested ones!).

Looking at the company's recent performance, one is left to wonder: Is this is one of Benjamin Graham's "goodwill giants," or a highflying stock in need of a minor correction? Either way, the company is likely to deliver a reasonable return into the future.

9. Hormel Foods

Liability Adjusted Cash Flow Yield: 3.84%

Dividend Yield: 2.09%

Return on Invested Capital: 14.12%

Hormel ( HRL) is a brand that many Americans will recognize -- and the company may have tapped into one of America's favorite snacking celebrations: Super Bowl Sunday.

Historically, search interest for this meat purveyor peaked around December, according to Google Insights for Search (not surprisingly, as "party trays" are a common fixture at holiday celebrations). But beginning last year -- and projected into this year -- search interest peaked during the first weekend of February. Seemingly, cheese dip is of particular interest.

For income investors, Hormel yields slightly more than the S&P 500 (and raised its distribution 21% from 2010 to 2011). But, anathema! The company dedicated more cash to share buybacks than dividend distributions last year.

For buy-and-hold investors, this is a frustrating use of capital.

8. PPG Industries

Liability Adjusted Cash Flow Yield: 3.91%

Dividend Yield: 2.55%

Return on Invested Capital: 16.48%

PPG Industries ( PPG), like United Technologies ( UTX), is a diverse company that creates products you've probably used without realizing.

Originally known as the Pittsburgh Plate Glass Co., today PPG provides a wide array of glass, coating and optical products, including polarized lenses for sunglasses, windshields for airplanes and even transparent armor for military vehicles.

Fundamentally, PPG has been a consistent performer, delivering solid cash flows throughout the worst of the financial crisis. But the stock has been volatile. It collapsed to around $30 per share in 2009, then, rocketing toward $100.

Alas, if you care to guess where in that price range PPG management spent the most money repurchasing shares, you'll likely be as disappointed as this author.

7. Sigma-Aldrich

Liability Adjusted Cash Flow Yield: 4.09%

Dividend Yield: 1.05%

Return on Invested Capital: 22.97%

Paying a visit to Sigma-Aldrich's ( SIAL) Web site, you might be surprised to see a periodic table necktie and matching coffee mug for sale. This coming from a company that boasts over 512 scientific services and sells 187,000 products that include no less than DNA itself.

Apparently, even chemists have a sense of humor.

This author makes no representations of understanding the details of Sigma-Aldrich's business. And, perhaps, the complexity of the business is great enough to preclude many investors from purchasing shares.

But it must be said that since 1978, Sigma-Aldrich's shares have appreciated over 15,000% (dividends notwithstanding). This performance makes even the best-performing stocks of the past 30 years seem like laggards.

6. 3M

Liability Adjusted Cash Flow Yield: 4.81%

Dividend Yield: 2.52%

Return on Invested Capital: 21.50%

3M ( MMM) dabbles too much in share buybacks. The same can be said of many Dividend Aristocrats (or for that matter, many S&P 500 components), but in the case of the Minnesota-based company, the timing of buybacks has been particularly troubling.

In 2007, 3M traded near $100 a share; in 2009, 3M traded as low as $42 -- yet management committed 190 times as much money to share buybacks in 2007 than 2009.

Now imagine, instead, if management had saved their money (actually, their shareholders' money), until 2009, then used it to snap-up distressed investments or to poach talented workers who were indiscriminately laid off in the financial panic.

Managerial dabbling in the financial markets no doubt left long-term investors worse for the wear.

5. Becton Dickinson

Liability Adjusted Cash Flow Yield: 4.85%

Dividend Yield: 2.28%

Return on Invested Capital: 19.44%

Out of approximately 100 million registered domain names, there are only 676 two-letter domains that end in ".com." Becton Dickinson ( BDX) -- -- owns one of them, and the company had the foresight to register this Internet oddity in 1998.

You can view this information as a useless factoid or perhaps a tacit affirmation of a business culture that Morningstar calls a " decades-long dedication to innovation."

Either way, this medical supplies manufacturer has delivered consistent returns on capital that have translated to favorable shareholder returns. And with a beta of 0.6, investors may wish to park rainy day money in this stock while waiting for a downpour. Of course, when it comes to storms, it's always nice to sell low-beta names (that may be undervalued) to fund the purchase of high-beta names (that are likely, more undervalued).

4. Illinois Tool Works

Liability Adjusted Cash Flow Yield: 5.21%

Dividend Yield: 2.71%

Return on Invested Capital: 18.62%

The name "Illinois Tool Works" may invoke images of hammers and simple hand tools, but make no mistake, this company has its fingers in a lot of pies -- more than 800.

Some investors and analysts who feel the company must tighten operations to deliver shareholder value, and to that end, Relational Investors LLC (a 2.1% owner of the Glenview, Ill., company) has recently negotiated its way onto the Illinois Tool Works ( ITW) board.

Investors should hope that this activism enhances long-term returns without unsettling the underlying business. After all, Illinois Tool Works has delivered shareholder returns far in excess of the S&P 500 and diversified industrial companies (collectively). If the company was truly stretched too thin, its return on capital would have suffered (the return is more than adequate).

3. C.R. Bard

Liability Adjusted Cash Flow Yield: 5.44%

Dividend Yield: 0.82%

Return on Invested Capital: 32.99%

By happenstance, the 10 stocks named in this article form a reasonably diverse portfolio.

If there is any redundancy to be had, one could argue that C.R. Bard ( BCR) and Becton Dickinson -- both New Jersey-headquartered medical equipment providers -- present an either-or situation. Over the decades, Bard has delivered investors a better return (perhaps a reflection of the company's superior return on capital), and Bard is the cheaper of the two companies.

However, Becton Dickinson's dividend yield exceeds Bard's by a wide margin. Without analyzing the future prospects of either company, Bard may present the better long-term value while Becton Dickinson may prove more attractive for investors seeking a higher-level of current income.

The "right" answer may prove dependent on the investor's personal situation.

2. Nucor

Liability Adjusted Cash Flow Yield: 6.16%

Dividend Yield: 3.27%

Return on Invested Capital: 15.14%

The tale of Nucor's ( NUE) dividend is bittersweet: While the steel manufacturer has raised its payout annually, it has done so in the face of declining cash flows.

But the fact that Nucor had the accumulated financial strength to support its dividend during a cyclical (and, perhaps, secular) downturn is a testament to managerial foresight (in stark contrast to, say, U.S. Steel ( X)).

Whether or not the worst is behind the steel industry remains to be seen, but Nucor has a very strong balance sheet, and that should give investors some confidence that this too shall pass.

1. Leggett & Platt

Liability Adjusted Cash Flow Yield: 8.04%

Dividend Yield: 5.08%

Return on Invested Capital: 22.65%

In the days spent writing this article (after the necessary research was performed to arrive at a list of 10 stocks), Leggett & Platt ( LEG) shares have sunk far enough to show a negative return on the decade.

This fact should eliminate the stock from our list (keeping in the spirit of our third criterion, listed on the first page of this article). However, because the stock may, at any time, appreciate the few percentage points necessary to merit inclusion in this list, and because there is no other Dividend Aristocrat that satisfies four of our five criteria, we shall allow the company to remain.

Leggett & Platt is a diversified manufacturer whose claim: "Our Products Are All Around You," is a statement of fact, not puffery. The company's product offerings include carpeting found in large, common areas; bed springs; lumbar support within automobiles; and many other products that customers use without noticing.

The company is the highest-yielding stock on this list and also the cheapest. But this "bargain" comes with the caveat that for several years, Leggett & Platt has suffered from deteriorating revenue and income. In the past 12 months, these metrics have righted themselves (somewhat), but the market has valued this company as a business in decline.

The truth, as always, remains to be seen.

>>To see these stocks in action, visit the 10 Best 'Dividend Aristocrats' for 2012 portfolio on Stockpickr.

-- Written by John DeFeo in New York City


Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.