Exclusive: Top Dividend Plays for 2007

Investments that provide income versus growth will likely become more important to many people as the nation's population ages over the next 5 to 20 years.

Josh Peters, editor of Morningstar's DividendInvestor Newsletter, said in an exclusive interview on that companies that pay higher dividends will appeal to that older investor base.

But before you invest in a stock for its income potential, you should first make sure the dividend's stream of income is secure and be reasonably sure that the dividend will grow over time to at least offset inflation, Peters said.

Peters' favorite sector for dividend investing is the energy master limited partnership space, which includes companies such as Kinder Morgan Energy Partners .

"In this case, you can find investments with yields in the 6 to 7% range and yields that can continue to grow as the companies expand their asset base and in a lot of cases just benefit from inflation," said Peters.

He also likes large-cap bank stocks. His top pick is US Bancorp, which he says just raised its dividend 21%. Peters also likes Bank of America, which he believes is underappreciated from a dividend perspective, noting the company has grown its dividend at a double-digit rate for decades.

Another company Peters recommends is Compass Minerals , the largest operator of salt mines in America, and a major producer of road de-icing salt. He says the stock offers a good dividend growth opportunity for investors who are willing to ride out fluctuations in weather conditions.

Peters acknowledges that a lot of companies are holding large cash reserves rather than passing those profits on to shareholders as larger dividends, if they offer dividends at all. However, he says investors can look for companies that are likely to come under pressure to increase their dividend. He believes one such company could be Home Depot .

"Now that they can't grow at the rate they did in the past, management is under pressure and they've responded, in part, by doubling their dividend this year," Peters said. "I'd like to see them continue to step that dividend up and pay out a lot more cash to investors and I think that they will attract a whole new clientele that wouldn't be worried about quarterly fluctuations in growth."