They deliver downside protection. They post stable returns. And they generate predictable income. What's not to like about dividend-paying stocks?
Indeed, equities that pay out a portion of their profits to shareholders have attained rock star status among income investors who fled the bond market when Treasury yields hit rock bottom in 2012. And they did not disappoint.
The S&P 500 Dividend Aristocrats index, which includes companies that have increased their dividend for at least the last 25 years, posted a 32.2 percent total return in 2013, up from nearly 17 percent the year before. By comparison, the S&P 500 Index was up 32.4 percent in 2013 and 16 percent in 2012, according to S&P Dow Jones Indices.
With S&P 500 dividends expected to increase 8.9 percent to $352 billion in 2014, according to Markit, the love affair is likely to continue.
"There is a secular change taking place in that baby boomers who are retiring know they still need to own equities for capital appreciation," said Josh Peters, equities strategist for Morningstar. "Dividend-paying stocks become very important not just because they generate income but because most are defensive plays, such as consumer staples, utilities and telecommunications, so there's less risk to earnings in an economic slowdown."
Like all things rooted in Wall Street, however, risk factors abound.
(Read more: Dividend party just getting started on Wall Street)