Stocks that consistently pay dividends (even better: stocks that consistently pay consistently increasing dividends) should by all means be included in your investment portfolio for a variety of reasons. In addition to the obvious added value these holdings bring to your portfolio (to be discussed below), on average, dividend-paying companies tend to earn a higher annual return than non-payers and, in general, consistently outperform the market. Whether or not a stock is a net payer is a good macro indicator of its stability, value and ability to perform, making these stocks prime picks for long-term portfolio retention; if the stock pays a consistent dividend, you’ll benefit from capital appreciation and enjoy the dividend as an extra bonus.

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If you decide to invest in paying stocks, your gain is maximized if you resist the temptation to spend the dividend; instead, reinvest the dividends back into your portfolio, compounding your return. Letting such dividends contribute to funding your investment account is a sure and smart way to increase the chances of building a portfolio you can comfortably retire on, because the earnings are reliable; hold these stocks for the long-term, and enjoy both asset appreciation and the dividend, which can serve as a hedge against loss, inflation, and other value-deteriorating risks.

When choosing dividend-paying stocks, looking for those that pay consistently, and that consistently increase their dividend, is not enough: the real gems are those that might be temporarily undervalued. Periods of market volatility are an excellent time to scoop up some paying stocks on price downswings: if the price continues to fall, the dividends are your hedge against loss; when the price bounces back, you’re a double winner. If you’re already experienced in investing in the stock market and have developed the habit of performing solid research, you should be well-positioned to identify dividend-payers to watch: good buy candidates are stocks with historical performance in pace with the market and strong balance sheets. Look for those whose payout, albeit consistent, remains at a level that leaves sufficient earnings within the company to fund operations and growth, since paying out dividends to the extent that the company jeopardizes its ability to continue to invest in itself is short-sighted and self-defeating. If the company can find the right balance in how it handles its earnings, it optimizes its ability to operate and promote growth in a healthy manner. Wait for the downswing and when the market moves in your favor, place your buy order.

It’s an accepted principle that over time, shareholder-friendly dividend-paying stocks consistently outperform non-payers. While the rate of growth of net payers might seem anemic as compared to some of the market’s darlings, the value of reinvested compounded dividends cannot be underestimated. Sound investment strategy includes the purchase of paying stocks as part of a healthy and diversified portfolio, particularly if you’re investing for income. Hold your dividend payers for the long-term, and enjoy the gesture of loyalty that the issuing company is making toward its shareholders each time you receive a dividend check.

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