NEW YORK (TheStreet) -- The Standard & Poor's 500 currently offers investors a dividend yield of 2%. That's not bad, but you can do much better.

Here's a stock with a dividend yield of 4.2%, trading for a price-to-earnings ratio of just 11.5 and has paid steady or increasing dividends for 32 consecutive years.

That stock is Eaton (ETN) - Get Report.

Over the last 15 years, Eaton has delivered investors total returns of 11.8% a year while its peer group has generated returns of 10.3% a year. The S&P 500 has total returns of just 4.8% a year over the same time period. Investing in stocks with a long track record of outperformance and a low valuation is a winning formula.

Of course, stocks don't get cheap just because. There is always a reason. Eaton is no exception. (Click here to see other blue-chip stocks trading at bargain prices.)

Eaton's stock price has declined about 24% in the last quarter. To understand why, we first need to see how Eaton generates revenue.

Eaton manufactures and sells electrical products and systems used in the power generation industry, vehicle equipment, hydraulics, and aerospace equipment. Grain prices have been falling, which has reduced profits in the company's hydraulics division. Large customers such as Caterpillar (CAT) - Get Report simply buy less when there's less demand for its products.

Similarly, low oil and gas prices have reduced sales in the company's power generation divisions. Growth slowdowns in China and South America have reduced sales in the company's vehicle division as well.

Despite the recent slowdown, Eaton increased its operating profits by 3.4% in its most recent quarter by focusing on efficiency and raising margins.

Eaton, founded in 1911, has a long history of growth. Over the last decade, Eaton has compounded earnings per share at 6.3% a year. Dividends per share have grown at 13.6% a year.

Eaton investors should expect dividend growth in line with earnings-per-share growth. The company's management stated that that "dividends are targeted to grow in-line with future earnings growth."

Earnings-per-share growth will likely slow in the near term due to low agriculture and oil and gas prices, and the growth slowdown in emerging markets. Over the long run, Eaton should manage to compound its earnings per share at between 5% and 7% a year, about in line with its historical averages.

This growth, combined with the company's current 4%+ dividend yield, gives investors excellent expected total returns of 10% a year, on average.

Eaton stock is not for everyone, however. Investors in Eaton must be able to tolerate volatility. The company tends to see earnings fall significantly during recessions. If the global economy enters into a full-blown recession, Eaton's earnings will very likely fall precipitously.

The company's earnings per share through the Great Recession are shown below to illustrate this point:

2007 earnings per share of $3.38

2008 earnings per share of $3.42

2009 earnings per share of $1.30 (recession low)

2010 Earnings-per-share of $2.73 (beginning of recovery)

Eaton makes an excellent investment for investors who have the psychological edge to hold a stock during weakness. (Click here to see the most recession resistant "Dividend Aristocrats.")

The company's high 4.2% dividend yield and low price-to-earnings ratio of 11.5 make it a great value in today's high-priced market. Additionally, Eaton is a shareholder friendly business with a long history of paying investors steady or rising dividends. These characteristics make Eaton a favorite of "The 8 Rules of Dividend Investing."

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.