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Dividend-paying stocks could beef up investors' nest eggs

During the 1990s, growth stocks were the rage. But with the market slump that began last year, investors building a nest egg for retirement may want to consider adding a few dividend-paying stocks to their holdings.

You don't have to sacrifice good earnings-growth prospects to get dividends. In fact, dividend-paying stocks in Standard & Poor's 500-stock index performed better than nondividend stocks by about 5 percent for the 12-month period ending Nov. 30, 2000.

The following stocks all have a history of rising dividends and offer good prospects for appreciation.

In the drug sector, there's American Home Products Corp. (AHP, $56; 1.5 percent), a leading maker of vaccines, prescription drugs and over-the-counter drugs such as Advil and Robitussin.

With the diet-drug litigation largely behind it, and with strong sales of existing medications and promising new drugs (including one to treat Alzheimer's disease), American Home is in position to grow.

Earnings are projected to increase 15 percent annually, according to First Call/Thomson Financial, which compiles analysts' earnings forecasts. The company has raised dividends for the past 47 consecutive years.

Deregulation has dampened the utility industry's ability to raise dividends. An exception is El Paso Energy (EPG, $71; 1.2 percent), which has raised dividends every year since it went public in 1992.

El Paso is the nation's largest natural gas pipeline company, with more than 40,000 miles of pipe. Its merger with Coastal Energy Corp. this year will make it among the top five in every segment of the U.S. natural gas market, including production, processing, storage and wholesale marketing.

Besides riding higher natural gas prices, El Paso's Merchant Energy unit, which buys and sells natural gas and electricity, has boosted results. For the first nine months of 2000, earnings per share rose 63 percent. El Paso's earnings are projected to grow 15 percent annually.

In the beverage industry, keep an eye on PepsiCo (PEP, $49; 1.1 percent), which sold its restaurants and bottling operations to focus on soda-pop concentrate, Tropicana fruit juices and Frito-Lay snacks. It recently agreed to buy Quaker Oats and its top-selling drink, Gatorade.

The Frito-Lay and Tropicana divisions, in particular, have boosted Pepsi's profits. The snack-food division accounts for 65 percent of profits. Earnings per share grew 18 percent in the first nine months of 2000 compared with the same period in 1999.

Earnings are projected to grow 13 percent annually. Pepsi has raised its dividend for 12 consecutive years.