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Dividends are in vogue again. Just a few years ago, many investors weren't chasing after dividends. They preferred companies they invested in to buy back stock or plow all their earnings into their businesses.
But in today's more uncertain times, people like the security that only cash dividends can provide. The 15% maximum tax rate on dividends helped persuade many companies to boost their payouts, as did the cash hoards that many corporations amassed during the past few years.
The bottom line: More stocks are yielding more money per share every quarter. Of the stocks in Standard & Poor's 500-stock index, 377 now pay dividends, ten more than a year ago. More striking, 272 of those companies hiked their dividends in the past 12 months -- by an average of 20%.
Research shows that stocks that pay dividends outpace those that don't. But the best bets for investors are stocks that demonstrate a steady increase in dividends. Since 1972, companies that raised or began paying dividends returned an annualized 11%, on average. That's more than twice the return of non-dividend payers, reports Ned Davis Research.
The study merely confirms common-sense wisdom. When a company repeatedly increases what it pays you, it's not only making money, it's steadily earning more -- assuming, of course, that it's not paying out more than it earns. "When you buy companies that consistently raise their dividends, you end up with above-average businesses and you get an increasing income stream," says Tom Huber, manager of T. Rowe Price Dividend Growth fund -- a solid choice for fund investors despite a yield of only 0.9%.
To find such stocks, use the Kiplinger.com Stock Finder. You can set the bar high. Filtering for companies that have raised their dividends for at least ten consecutive years produces a list of 199 stocks. Insisting on a minimum yield of 1.7% -- the average yield of the S&P 500 -- cuts the number to 147. Of course, you can specify other criteria to narrow the list even more.
To further refine the pool, we studied government filings and research reports, and we talked with brokerage analysts, mutual fund managers and officials at the companies themselves. These are six solid stocks with rising dividends that made the grade.
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