Finding the best investments to make money will involve building a diversified portfolio with stocks offering dividends and a history of success, among other attributes

You may want to invest in dividend-paying income stocks if you’re looking for the best investments to boost your long-term portfolio returns.

When you pick the best income stocks, you are, for the most part, investing in safer and more secure companies. That’s in large part because of the dividends that those stocks pay. Dividends, after all, are much more stable than earnings projections. More important, dividends are impossible to fake—either the company has the cash to pay dividends or it doesn’t.

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It’s important to remember that not all income stocks are created equal. Here are two key guidelines we recommend in our Successful Investor investment services and newsletters for investors hoping to pick the best investments to make money.

1. Maintaining or increasing dividends: Apart from a high dividend yield, you should look for stocks that have a long history of paying (and raising) their dividends. For a true measure of stability, focus on those companies that have maintained or raised their dividends during economic or stock-market downturns.

That’s because these firms leave themselves enough room to handle periods of earnings volatility. By continually rewarding investors, and retaining enough cash to finance their businesses, they provide an attractive mix of safety, income and growth.

1. A reasonable dividend yield: You can identify income stocks by their high dividend yields (the percentage you get when you divide a company’s current yearly payment by its share price). For example, stocks with a dividend yield higher than, say, 3% would typically be attractive to an income-seeking investor.

However, it’s important to avoid judging a company based solely on its dividend yield. That’s because a high yield can sometimes be a danger sign rather than a bargain. For example, a company’s dividend yield could be high simply because its share price has dropped sharply (because you use a company’s share price to calculate yield). That can be a sign of an imminent dividend cut.

Compounding is essential when you’re searching for the best investments to make money

Compounding is one key way your personal wealth grows. Compound interest is earning interest on interest. Over time, your long-term investments will earn more and more money from the effects of compound interest.

Compound interest can be applied to dividend-paying stocks, as well as to fixed-return, interest-paying investments like bonds. When you earn a return on past investment returns (including dividends), the value of your investment can multiply. Instead of rising at a steady rate, the number of dollars in your portfolio will grow at an accelerating rate. At the same time, it’s very important to keep an eye on expenses or fees that affect your return. Even 1% a year can be huge drain on your portfolio over time.

The best investments to make money include well-established companies

Well-established companies that meet our Successful Investor criteria are the key to above-average investment profits. Instead of moving between extremes of risk, we continue to think investors will profit most—and with the least risk—by buying shares of well-established companies with sound business prospects and strong positions in healthy industries. That’s not to say that there won’t be surprises that affect every company in a particular industry. But well-established, safety-conscious stocks have the asset size and the financial clout—including sound balance sheets and strong cash flow—to weather market downturns or changing industry conditions.

Portfolio diversification with the Successful Investor approach will enhance your potential for long-term gains

If you diversify as we advise, you improve your chances of making money over long periods, no matter what happens in the market.

As part of their portfolio diversification strategy, most investors should have investments in most, if not all, of the five main economic sectors. The proper proportions for you depend on your temperament and circumstances.

If you’re an income investor, you may wish to place more emphasis on Utilities and Canadian banks. That’s because these firms generally pay high, secure dividends, and have long histories of raising their payments, even during downturns.

More aggressive investors might want to increase their portfolio weightings in Resource or Manufacturing stocks. However, in particular, you’ll also want to spread your Resource holdings out among oil and gas, metals and other Resource stocks for diversification and exposure to a number of areas.

By diversifying across most if not all of the five sectors, you avoid overloading yourself with stocks that are about to slump simply because of industry conditions or investor fashion. You also increase your chances of stumbling upon a market superstar—a stock that does two to three or more times better than the market average.

What are some investment types that you consider to be the most-profitable stocks you have?

What are your thoughts on the best types of investments for making money in the stock market?