Most investors are probably aware of the difference between a company that pays a dividend to its shareholders and one that does not. What many investors may not know is just how vital dividends can be to bolstering a portfolio's returns, especially in these volatile times when quote screens bleed red and new lows are made on an almost daily basis. Just how vital is having a few stocks in your portfolio that pay dividends? Consider this: Since 1926, dividends have contributed more than 40% of the total return of the S&P 500.

Where to Look for Juicy Dividend Payments
Investors need not strain themselves looking for quality stocks that consistently pay good dividends. In fact, many of the better dividends come from some of the largest, most well-known U.S. companies. In addition, investors should also look abroad for international companies that pay high dividends. (For more, see The Importance Of Dividends.)

Running a search for high-flying dividends and superior dividend yields will undoubtedly show investors more than a few names in the beaten down financial sector. For example, some large financials currently have a high dividend, which makes the yield on its battered shares look all the more attractive. Some advice for investors: Know the difference between dividend yields and the actual amount of the paid dividend and don't try to be a hero when it comes to picking the basement in beaten down sectors.

Five Stocks to Help Investors Stash Some Cash
Here are five dividend plays investors may want to take a look at in an effort to acquire some cash while the markets sort themselves out.

Company Current Dividend Yield Market Cap
Reynolds American(NYSE:RAI) 7.5%% $12.69B
Brasil Telecom Participacoes S.A.(NYSE:BRP) 7.5% $2.42B
France Telecom
(NYSE:FTE)
10.5% $67.00B
McDonald\'s(NYSE:MCD) 3.5% $60.07B
US Bancorp(NYSE:USB) 4.90% $53.71B
Data as of market close October 8, 2008


Dividends and Vice
Among these cash-cows lurk a couple of "vice" stocks. In particular, Reynolds American, one of the largest cigarette makers in the world, fits the bill as a sin stock. McDonald's may as well with its Big Macs, french fries and milkshakes. Don't smoke or gorge yourself on Big Macs? It shouldn't matter. These are two offer the best dividends around. In fact, McDonald's recently raised its dividend by 33%. That at a time when over 100 companies lowered or eliminated dividends in the third quarter. Tobacco companies are also among the best dividend payers, and Altria Group (NYSE:MO) and UST (NYSE:UST) pay nice dividends in addition to Reynolds American.

Dialing Long Distance
It's always good to have some international exposure in your portfolio to hedge against the whims of American markets, sp why not receive a nice dividend in the process? Brasil Telecom and France Telecom operate in essentially the same business, telecommunications, in different corners of the globe. The timezone shouldn't matter, but the truly exceptional dividend payouts offered by these telecom giants do. Brasil Telecom, in particular, offers American investors the chance to invest in a truly growing market, Brazil. Both stocks are available as ADRs.

A Financial?

US Bancorp has kept its nose quite clean relative to its peers in the U.S. financial services sector. Its share price has held up remarkably well, no doubt a result of the company's lack of risky loans and no forays into the complex financial instruments that have been the undoing of so many of its brethren have kept shareholders happy. Its dividend is like the company itself: consistent, respectable and sturdy.

Bottom Line: Cash Truly is King
When the bears rule the Street, as they do currently, capital appreciation is always at a premium, so investors need to explore other avenues to generate returns for their portfolios. Dividend paying stocks may just be the tonic to sooth an ailing portfolio. The five stocks mentioned here are a solid foundation, but investors may also want to evaluate companies in the following sectors: energy, food, regional banks and utilities or dividend-based ETFs. All are known to contain at least a few names that consistently reward shareholders with cash payouts.

For further reading, see The Power Of Dividend Growth.

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