I'm a huge fan of investing in dividend paying stocks, specifically in my taxable account. I think they're a good way to get annual income that grows each year while not worrying about the underling stock price.
However, as a lot of people have already pointed out, there are a ton of pitfalls. Dividends aren't the end all, be all, but its a consistent way companies can return cash to shareholders.
Lots of dividend paying stocks are financials and REITs. These cut their dividend quickly in a bad economy because they are usually highly leveraged businesses. I avoid these.
You then have to look at the underlying company, what they earn, then what they pay out. Depending on the industry, the payout ratio (Dividend/Earnings) is really important. You can get a higher yield today from a utility or tobacco company, but they don't reinvest as much because there's only so much growth they can get.
I like settling in for the 30-60% payout companies. I just bought a chunk of railroad stock - they only pay 2%, but consistently increase their dividend while holding half their money for growth in the business.
This is like any other investing, sometime you win big and sometime you don't. I bought KO as a dividend investment and its only up 7% while the market was up 30%. At the same time, I bought a restaurant with a good balance sheet and cash flow, but challenging management. An activist investor got on them and they have since doubled their dividend and the stock is up 60% because they stopped opening new, marginally profitable stores and instead sending that cash back to the shareholders. My yield on that deal relative to my cost basis is above 6% and I've only had the stock for two years.
Others have just consistently raised their dividend each year, which is where the real nice returns start happening.
Warren Buffett pointed out recently that his 1986 investment in Coca Cola now returns more each year in dividends than what he invested originally.
I keep a separate spreadsheet I look at that tracks the income. It looks like:
Stock, Shares, Dividend/Q, Dividend/Y, Income.
Then I total that up. I have a nice passive income coming in each month and it grows.
I'll say it again, dividends are not the end all, be all, but I enjoy their functions of consistently returning cash to the shareholders