Merck, P&G and Other Dividend Stocks You Wish You'd Bought in 2013

NEW YORK (TheStreet) -- What a marvelous feeling to buy a stock and watch it rise in value.

I love checking my portfolio after I see a stock I own moving higher. Even more electrifying is when the stock is a dividend payer.

Historically, dividend stocks outperform non-dividend payers, but knowing which ones to buy is no easy task.

I spend a lot of time trying to help you avoid buying the dogs known as dividend traps. Dividend traps are the seemingly attractive high-yield, low-cost stocks that have a tendency to go even lower right after you buy them.

With careful research of sectors, costs in relation to earnings, technical analysis and spending time reading SEC filings, you can shift the odds.

Normally, I don't venture far from highly liquid names everyone knows. However, I'm finding other under-the-radar names that industry insiders know about, but the overall market doesn't. The potential gains are much greater if you're willing to sit and wait for others to discover the hidden value.

Of course, playing the waiting game isn't so tough when you're receiving checks in your mailbox every 90 days.

SLP Chart

First is a stock you may see often because I'm tremendously excited about its income-generating ability. This is not the first time I've highlighted Simulations Plus (SLP), and I doubt it will be my last. The company is a California-based, $100 million (market cap) software firm with massive gross and net margins. It's debt free, and it's small enough that most have never heard of it or the products outside of the pharmaceutical industry.

Customers love the cost savings from using the software compared to actual laboratory research. The top 20 pharmaceutical companies in the world are customers. Simulations Plus is a leader in the simulation software space that counts the FDA and MHRA (U.K's equivalent of the FDA) as clients.

The stock doesn't offer enough liquidity to trade it, but for long-term investors preferring dividends over daytrading, its 3.4% yield is hard to beat. I wrote a Real Money Pro post with exact entries and profit targets, and I bought this one myself.

SLP Revenue (Annual) Chart

From a cost of earnings perspective, the stock isn't expensive relative to its growth. The pharmaceutical space is in full merger mania, and I wouldn't be shocked if it spills over onto Simulations Plus. That said, the bull thesis doesn't require takeover speculation and I'm not betting on it.

Two analysts track Simulations Plus. Both share my opinion that the stock is a buy, but only one proffers a price target of $6.10.

During the last 12 months, the stock price has popped 52%.

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