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Tickers in this Article: D, CMS, CNP, FE, POM, ETR, SRE
The other day, I looked at a mutual fund statement for which my parents have a very small investment. They initially invested into the fund almost 10 years ago and only made minor contributions for several months, although they have not sold their units to this day. The fund holds Canadian blue chip, American blue chip, dividend growth and several other diversified asset classes. To my surprise, the American chip component, over the extended time period, has produced a return of approximately only 1.5%, while the dividend growth investments have resulted in a 250% return. This made me realize the importance of necessity to incorporate dividends into one's portfolio, even if only on a small scale.

IN PICTURES: 4 Biggest Investor Errors

Dependable Dividends
Rather than searching for stocks with incredibly high yields, investors should look for companies and sectors that have a long history of dividend payouts. Small cap companies with dividends exceeding 10% often have unsustainable payout ratios, and are typically more risky than large, established corporations that have the earnings potential and cash reserves to maintain the desired dividend policy even in tough economic time.

Small-cap stocks often offer a dividend to attract initial investors, but fail to capitalize on the original business idea, resulting in capital losses. While it is often said that dividend income is one of the few certainties of a volatile market, a more accurate statement would be that dependable dividends from companies with a solid business models and balance sheets are the certainty.

Look to the Utilities
The utilities sector has been established as an ideal investment alternative for those seeking so gain dividend income. However, it is not only the solid 5% or so yields that make this market an attractive investment opportunity; the demand for utilities is fairly inelastic, compared to some other industries, and expected to remain strong in upcoming decades. While the International Energy Agency expects energy use per capita in the United States to decrease through the next 25 years, growth in the American population will put overwhelming upward pressure on energy demands. Furthermore, with the recent movement toward clean energy sources such as wind and nuclear, it is the utilities that are leading the charge on implementing some of these renewable sources. As wind and solar energy slowly become cost competitive with other sources like natural gas, the utilities will be among the first to benefit.

The Bottom Line
Dominion Resources (NYSE:D), CMS Energy (NYSE:CMS), Center Point Energy (NYSE:CNP), First Energy (NYSE:FE), PEPCO Holdings (NYSE:POM), Entergy (NYSE:ETR) and Sempra Energy (NYSE:SRE) are among the largest utilities, all of which offer a respectable dividend to investors in addition to growth opportunities. Sempra and Dominion offer a modest yield of 3.05%, while PEPCO has a significant dividend yield of 6.15%. Within the last six months, utility corporations, measured by the Utilities Spider ETF (NYSE:XLU), are up 4.74% while the overall market, measured by the performance of the S&P 500 is down 1.40%. (Discover the issues that complicate these payouts for investors. For further reading, check out Dividend Facts You May Not Know.)

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