A few strong data points was all Wall Street needed to rally on Thursday, but on Main Street caution is still king and dividend-paying stocks are in favor.

Strong hiring by U.S. private employers in June coupled with a larger-than-expected drop in jobless claims spurred hopes that the soft patch the U.S. economy has entered might be short, rather than lead to another recession.

Better-than-expected sales gains at retailers like Macy's Inc , Costco Wholesale Corp and Target Corp added to optimism.

But with unemployment still relatively high and debt issues swirling in Greece and Europe, there is a lot of uncertainty about investing, said Catherine Avery, president of Catherine Avery Investment Management in New Canaan, Connecticut.

We're going to have ups and downs, the data's not going to move up in a straight line, said Avery, who oversees about $20 million in assets. Because of that, we're advising clients who are still very, very scared and nervous about getting back into the market, that they should be looking toward high-quality, dividend-paying stocks.

Avery recommended industrial conglomerate Emerson Electric Co , which for 54 consecutive years has increased its dividend, along with Coca Cola Co and oil field services company Schlumberger Ltd .

Money markets are returning next to nothing and the 10-year U.S. Treasury is yielding a little more than 3 percent. But companies are flush with cash and slowly returning that to shareholders, Avery said.

Of the 33 stocks in her model portfolio, 19 have increased their dividend by an average 10.6 percent so far this year, she said.

The economy will steadily improve with a few pauses, as it has since the depths of the financial crisis in early 2009, said Peter Maris, a financial planner at Resource Financial Group Ltd in Wilmette, Illinois. People understand that if interest rates head higher, bonds will lose money, he said.

Maris said his firm, which manages more than $200 million, normally favors mid-cap stocks, but small- and mid-caps have had a good run so he's recommending large-cap value.

The transition from bonds to stocks is going to be to stocks with a big dividend, said Maris, noting how his clients are handling their investments.

They know they're in stocks, they know it's a little bit riskier but in their mind's eye they're still getting their income every month from these nice dividends, which are approaching the yield on intermediate bonds, he said.

(Reporting by Herbert Lash; Editing by Leslie Adler)