At least three times last year, in Forbes, the Wall Street Journal, and Barron's, Cohen & Steers fund manager Rick Helm repeated the simple secret on how to avoid risky income stocks and earn a steady stream of high and growing dividends: The best income stocks are the ones that consistently raise their dividends, even though these stocks tend to have low current yields.

Helm has spent his entire career looking for the very best dividend-paying stocks, and his fund owns Procter & Gamble (which yields 2.7%), Microsoft (which yields 2.7%), Wal-Mart (which yields 1.8%), and a whole host of other stocks that don't look like good income investments at first glance.

But just look at how their dividends have grown in the last several years:

These stocks all are "world dominators." A world dominator is generally the largest, most powerful company in its industry. It can raise prices to stay ahead of inflation and use its enormous size to keep costs low. Raising prices or being the lowest-cost provider means these world dominators tend to crush the competition. So they often generate enormous amounts of cash.That cash can support dividends through good times and bad.

Microsoft has so much money it doesn't know what to do with it all. So it's paying it out to shareholders. It's buying back shares and paying the fastest-growing dividend I've seen among world dominators.

Wal-Mart's growth has slowed down, but it's still bringing in plenty of cash. So instead of using it to grow the business, it's using cash to grow the dividend.

Procter & Gamble has raised its dividend every year for 52 years in a row. The company's annual report is crystal clear: "Our first discretionary use of cash is dividend payments." Dividend payments come out of free cash flow. Free cash flow determines bonuses for P&G executives, giving them a great incentive to treat shareholders to a growing stream of income.

With world dominators like these, a low but rapidly growing current yield eventually becomes a large and growing yield. Let me show you an example...

You could have bought Wal-Mart in 1997 for less than $18 a share (split-adjusted). Back then, the quarterly dividend was $0.034. The current yield was tiny, below 1%. But if you bought Wal-Mart at that time and simply held on until today, you're now earning $1.80 a year in dividends for a yield of 10% or more over your original cost. Imagine owning a business like Wal-Mart and getting a 10% yield. It's an income investor's dream come true. (A stock price 200% higher doesn't hurt, either.)

Most income-focused investors lust after stocks with high current yields. Big mistake. High current yields usually indicate high risk... leveraged balance sheets and commodity-oriented businesses.

MLPs, REITs, and other stocks with high current yields must pay out a large portion of earnings in dividends or they'll lose their tax-advantaged status. They're not allowed to retain earnings for future growth. If they want to grow, they have to go to the capital markets and issue new debt and equity securities. It's impossible for most companies to issue new securities of any kind right now...

World dominators tend to be the most creditworthy institutions on Earth, so unlike high-yield REITs, they're immune to capital-market problems. Even when times get tough, they're not cutting their dividends.

Overall, last year was terrible for dividends. The fourth quarter of 2008 was the first year in 50 years of record keeping that Standard & Poor's reported more dividend cuts than increases.

If a growing stream of income that's impervious to economic disaster is what you seek, world dominators are what you need to own.

Good investing,

Dan Ferris