Israel, believe it or not, is a blossoming emerging market. That’s because the country has an obsession with technology. You could argue that Israel is more focused on technology than any other emerging market in the world.

On a per capita basis, the country has the highest number of scientists and technicians, the highest percentage of home computers and the among the highest technology research and development spending in the world. Microsoft (Nasdaq: MSFT) and Cisco (Nasdaq: CSCO) have both built their only R&D facilities outside the United States, in Israel.

While technological innovation has grown strong roots in this corner of the world, the Israeli market is also spawning a new breed of technology stocks with the nirvana combination of high growth and high dividends. Income investors can have their cake and eat it too.

Formula Systems (1985) Ltd. (Nasdaq: FORTY) is a prime example. The Israel-based global information technology (IT) company has been resilient through the soft global economy because it offers software and technology that lower costs and make businesses more efficient. 

The company serves customers in more than 50 countries and operates through three main subsidiaries: Magic Software (Nasdaq: NGIC) has more than 25 years of experience developing and selling software for businesses, Matrix provides IT solutions and services to companies throughout Israel, and Sapiens International (Nasdaq: SPNS) provides IT and software that reduces complexity and extends the life of older computer systems.

Formula has been able to consistently grow revenue by expanding its customer base all over the world and always looking for accretive acquisitions. The most recent acquisition was TACT Computers and Systems, a company founded by a group of Israeli Air Force and intelligence officers providing specialized software for the aircraft and automotive industries.

Formula has seen its revenue climb +78% from 2004 through 2008. Even in the global recession of 2009, revenue was roughly in line with 2008, falling only about -7%, to $469 million. Most of that decline was attributable to currency fluctuation as the shekel devalued against the dollar. However, aggressive cost cutting measures have made the company leaner and meaner, and net income attributable to shareholders soared +61% from 2008 to $19.1 million.

The market weighed in on all of this with a thumbs-up. The +114%-plus surge the stock has posted in the past year blows away most of its peers, as the tech-laden NASDAQ is only up about +24% during the same period. Despite the surge, shares still sell at less than 12 times 2009 earnings.

The company has a great balance sheet and is in a strong position to expand. As of Dec. 31 last year, total debt ($69 million) was less than a quarter of shareholder equity ($295 million), and the company had a whopping $100 million in cash.

The best part about Formula’s stock is the fat dividend. The company pays dividends once a year, but it makes it count. The 2010 dividend, paid May 4th, was $1.47, which translates to about 12.5% at current prices.

Dividend payments vary because the company has a policy of paying out sums “not planned to be used for investments in the near future.” However, even with no dividend in 2007, the average annual payment has averaged $1.65 during the last six years. Also important to remember: Israel has a 25% withholding tax on dividends, which can be offset against other taxes and retrieved when you file taxes in the United States. Dividend payments are converted to U.S. dollars from Israeli Shekels, so there is some currency risk involved.

Going forward, the company said it will continue to focus on cost cuts as well as mergers and acquisitions in 2010. Formula’s money saving technologies have made it resilient during the recession, but an improving economy is even better for earnings as companies invest more in technology infrastructure.

P.S. Investing in dividend-paying stocks is one of the most profitable ways to beat the market. For more on stable stocks that will grow your money with ever-increasing dividends, see Carla Pasternak’s latest course, The 5 Rules Every Income Investor Has to Know.