As the stock market gets more heated (some say overheated), investors are increasingly wondering what role dividends and buybacks might play in their future. According to a Standard & Poor’s paper, dividends contributed about a third of the monthly total return of the S&P 500 from 1926 to 2012. In the ’40s and ’70s, it was more than half.

The nadir was the 1990s, when the corporate culture of benevolence was tapped out and growth companies decided to use their cash in other ways. Since then, dividends have roared back, especially since the financial crisis. For long-term investors, the effects of dividends are largely seen in the total return over time. The S&P 500 Dividend Aristocrats Index, made up of companies that have increased their dividends every year for the last 25, has beaten the regular 500 index for the past five years, winning 18.41% over the latter’s 16.91%, while over 10 years the total return was 10.61% and the S&P 500’s was 8%.

Purists like dividends because they show a company is correctly deploying its capital (not letting cash sit on the books making bupkes), and also because the companies are demonstrating the reliability of their earnings and proving they love shareholders enough to pay them back. But in the last few years, investors have come to love dividends for other reasons. At a time when bonds have been yielding close to zero, a horde of retired workers have been looking for new ways to juice cash off their investments the way they did bonds in the ’80s and ’90s. Dividends also offer a firewall against market downturns; they make plummeting share values more innocuous. In fact, Goldman Sachs reportedly suggested in a note to clients that dividends and buybacks, set to return $1 trillion in 2015, would provide the market’s entire upside.

This search for yield has bid up the price of companies with higher payout ratios, says Don Taylor, lead portfolio manager of the Franklin Rising Dividends Fund, who has a chart breaking payers in the S&P into quintiles and showing the high P/E names have flipped to favor the good payers.

“This is dramatically different from 15 years ago,” he says. “At that point, if you were paying dividends, you were considered a company that couldn’t grow and didn’t have much value. It’s also a reflection of the very low interest rates and this search for something to generate an income stream when traditional quality fixed income has hardly any.”

But he warns that not all dividend payers are equal, and the purists, again, have distinguishing tastes and hair-trigger tempers. Josh Peters, of Morningstar, who runs its model Dividend Select Portfolio, says of tech companies, “No more.”

“If anything, I’ve been moving in the opposite direction over time and clinging more tightly to the tried and true,” Peters says.  

Taylor says that it’s the low interest rates that have gotten dividend stocks’ values ginned up, and that at the highest yield levels, they are behaving like bond proxies. That’s a risk if interest rates rise.

For that reason, Taylor says his fund’s strategy is to focus not on dividend yield per se but only on a dividend’s growth over time. The question: Have the dividends been rising steadily by 10% or so per year for many years, and can that be sustained?

That’s why many managers in this spot start with a lower payout ratio, a yield of 1.5% or so, where there is room for the dividend to grow and attract shareholders. It means seeking favorably positioned companies with steady earnings growth rising in stately pace and dialing up 6% to 10% dividend increases a year consistently without hiccup (that 1.5% yield, not impressive at first, becomes much more so—4% and higher—in 10 years or so).

One company Taylor likes for that reason is Becton Dickinson, a medical device company well known for, among other things, its innovations in needles and syringes, Taylor says. It has cranked up its dividends 43 years in a row. “We first started buying it in late 1996 and owned it ever since.

“At that time, it had 24 years in a row of dividend increases and the annual dividend over the previous 10 years had increased from 8 cents to 23 cents. So that’s a pretty substantial increase. The stock was trading at $19, so there’s been a 1.2% yield.” Not high, but “they’ve had annual dividend increases every November, so now … 43 years in row, the annual dividend is now $2.40, up from 23 cents in the fall of 1996.” That’s a double-digit compound dividend growth rate, he says. If you take $2.40, divided by the $19 price it was when the firm established that position, that’s 12.6%.”

His fund also likes Praxair, an industrial gases company spun off from Union Carbide in 1992. Since becoming independent, the business has increased its dividend every year.