BALTIMORE ( Stockpickr) -- If there's one thing that a correction is good for, it's reminding investors why dividends matter.
Even if yesterday's bounce in the S&P 500 was the first brick in another wall of the rally that's propelled stocks for seven months, investors are going to think twice about shedding their defensive income-paying names -- at least for a week or two. For some reason, dividends are associated with boring, low-return names. The big idea is that those paltry returns are the trade-off for the defensive properties of an income portfolio.
But in fact, dividends and total returns go hand in hand.According to research from Wharton Professor Jeremy Siegel, reinvested dividends account for as much as 97% of total market performance. Better yet, dividends even impact how big your capital gains are. Over the last three and a half decades, dividend stocks have outperformed the rest of the S&P 500 by 2.5% annually, and they outperformed nonpayers by nearly 8% every year, all while paying out cash to their shareholders, based on data compiled by Ned Davis Research. With companies sitting on record corporate cash and profits, it's going to be crucial to keep looking ahead for the companies most likely to dish out dividend hikes. In recent months we've had some stellar success in finding future dividend increases just by zeroing in on a few key factors. >>Beat the S&P With 5 Stocks Everyone Else Hates Now we'll look at our crystal ball and try to do it again. For our purposes, that "crystal ball" is composed of a few factors: namely a solid balance sheet, a low payout ratio and a history of dividend hikes. While those items don't guarantee dividend announcements in the next month or three, they do dramatically increase the odds that management will hike their cash payouts, especially as investors start to get antsy about whether or not 2013's rally will be able to hang on. Without further ado, here's a look at five stocks that could be about to increase their dividend payments in the next quarter. >>5 Stocks Under $10 Set to Soar