Since the turn of the new millennium, the U.S. economy has suffered two major shocks: the collapse of the Internet bubble and the collapse of the real estate bubble. This double whammy has revealed massive errors committed during the past 15 years or so by banks, investors, home buyers and business chieftains. In hindsight, is it any wonder the stock market has made no net progress since the beginning of 2000? Indeed, whatever meager return the S&P 500 Index has achieved in the new millennium is due entirely to dividends. Measured by price change alone, the index is down 21% since Jan. 1, 2000 (through Sept. 28).

Sure, there have been individual triumphs like Amazon (NASDAQ:AMZN) and Apple (NASDAQ:AAPL). However, the list of failures is a mile long. Chasing capital gains, without regard to current income, has been a largely futile quest.

This long drought will end someday — when the next mega-bull market begins. I’ve got to level with you, though. It might well take another three to eight years before the big liftoff. First, governments on both sides of the Atlantic must face up to the fact that they’ve promised more retirement, health care and other benefits than they can pay for without destroying economic growth.

A painful restructuring is coming. Once investors know the terms of the settlement, stocks will launch into another great long-term uptrend like that of 1982-2000. Until then, our job is to play our cards as shrewdly as possible, exploiting every edge we can find.

Three Powerful Advantages

With our focus on dividends and interest, we’ve got a powerful leg up on investors who overlook these three factors:

• Income-producing investments tend to hold their value better in tough markets.

Bonds in particular often go up in price when the stock market is falling. Dividend-rich stocks initially might drop with the market, but they generally snap back sooner — and recover further — than stocks that pay little or nothing.

• Over the long run, stocks that deliver generous (and increasing) dividends usually appreciate, too.

Think of utilities, food/beverage/soap stocks and master limited partnerships. In a low-yield environment, income-starved investors are drawn to these stocks like bees to nectar.

• Dividends and interest are themselves a valuable component of total return.

Maybe I’m stating the obvious, but investors have forgotten this truth in recent years. In the nine decades since 1930, reinvested dividends have contributed, on average, 53.8% of the total return from the S&P 500 Index. Share prices might fluctuate, but dividends always make you richer. Without dividends, you have to rely on the fleeting and all-too-mortal genius of a Steve Jobs (or a Ken Olsen or an An Wang — remember them?) to keep your money growing.

Buy Dividend Boosters

Of course, a dividend isn’t worth much if the company can’t keep paying it. At this tricky stage of the market cycle, I advise you to channel the bulk of your fresh cash into stocks with impeccable records of not only maintaining but also boosting their dividends year after year. Three I’m particularly keen on at the moment are:

AT&T

AT&T (NYSE:T) has upped its payout 27 years in a row. In late August, the Justice Department filed a suit to block, on antitrust grounds, AT&T’s proposed acquisition of T-Mobile’s U.S. wireless properties. I still think the deal ultimately will go through after the parties make some concessions to pacify the government, but even if the merger is scrapped, AT&T will continue to operate one of the globe’s most enduring — and profitable — telecom franchises.

Current yield: 6%. That’s more than double the longest-dated Treasury bond, and triple the Vanguard 500 Index Fund (MUTF:VFINX).

Nestle

The world’s strongest and best-managed food processor by far, Nestle (PINK:NSRGY) has had everything going for it lately — except the runaway Swiss franc. As a Swiss company, Nestle reports its sales and profits in francs. Because most of the firm’s business is conducted outside Switzerland, however, those foreign results tend to shrink when translated into a rising franc.

On Sept. 6, the Swiss central bank decided to drive down the franc and keep it at 1.2 (or more) francs to the euro. This step will immediately enhance NSRGY’s earnings for the balance of 2011 and probably into 2012 as well.

Nestle pays dividends once a year, typically in April. The payout has been sweetened 15 years in a row.

Current yield: 3.7%.

PepsiCo

Some analysts have expressed concern of late that PepsiCo‘s (NYSE:PEP) flagship brand Pepsi has lost market share to archrival Coca-Cola (NYSE:KO). In response, PEP on Sept. 14 tapped Al Carey, CEO of Pepsi’s successful Frito-Lay North America unit, to head North American beverages.

However, PepsiCo is much more than just a soft drinks company. Snacks, such as Doritos, Fritos and Lay’s potato chips, make up 43% of sales, and “good for you” nutritional foods (Quaker Oats, Tropicana, etc.) account for another 21%. In the long run, I believe PEP’s emphasis on products other than fizzy drinks will enable the company to grow faster than Coca-Cola, particularly in emerging markets, where the greatest potential lies. PEP’s sales to emerging markets have soared at an astounding 24% compound annual rate during the past five years.

Current yield: 3.3%.

The dividend, increased for 39 consecutive years, has more than tripled in the past decade alone.

What to Do Now

Buy T at $29 or less, NSRGY at $59 or less and PEP at $67 or less.

From here, I project a total return, in the next 12 months, of 20% to 30% for all three stocks, with PEP the most likely to achieve the top end of the range.