7 Dividend Stocks Shoveling Cash to Shareholders

BALTIMORE (Stockpickr) -- Contrary to popular belief, earnings season isn't just a crucial time for investors seeking capital gains -- it's also make-or-break time for income investors.

Even if dividend actions don't spur the same kinds of big-percentage moves that can be found in an earnings surprise stock, they can provide some material gains to their shareholders in the form of cold, hard cash. And dividend announcements generally tend to be grouped around a company's earnings calls.

Related: 5 Big Stocks to Trade for Gains

With stocks starting to take on a more bullish tone this week, now could be a good time to pick up shares of companies that are actively paying out dividends and increasing their yields. Don't think for a second that buying dividend stocks means that you'll have to forego capital gains in 2011. In fact, statistics that we mention each week show that the exact opposite is true:

Instead of being mutually exclusive, dividends and capital gains actually go hand in hand. Over the last 36 years, dividend stocks 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, according to a study from NDR.

The numbers are even more compelling when looking at companies that consistently increase their payouts.

That's why, each week, we take a look at the stocks that declared dividend increases the previous week. Here's a look at some of several stocks from our list of recent dividend-increasers, plus one other dividend payer worth taking a second look at.

Walgreen

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Retail pharmacy giant Walgreen ( WAG) weighs in as the largest pharmacy chain in the U.S., a title that's been less than impressive in the last few years. Pharmacy retailers have seen their market share squeezed by added healthcare regulations as well as increased competition from big-box stores and mail-order operations. But a shifting business could ultimately turn the tide for Walgreen and its peers.

Walgreen has been expanding the scope of its stores in recent years, adding in-store medical clinics to its repertoire of products and services. Walgreen isn't alone in that new offering, but it may be best suited to execute it successfully. The chain's 7,700 stores sport a geographic footprint that big-box competitors simply can't match.

Last week, the company declared a 28.6% dividend increase that brings its quarterly payout to 22.5 cents per share. That gives Walgreen a competitive 2.27% dividend yield at current price levels.

Walgreen is one of the 2011 Dividend Aristocrats, having raised its dividend for at least 25 consecutive years.

Cummins

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Cummins ( CMI) is another name that's been somewhat battered by recessionary headwinds. Not surprisingly, the $21 billion engine manufacturer has enormous exposure to the still-recovering auto industry as well as industrial spending trends. That positioning led to a significant contraction in revenues in fiscal 2009 and 2010.

But those numbers don't tell the whole story about Cummins right now. While 2010 revenues were still below the sales numbers the firm posted in 2008, net income was actually higher last year thanks to improved cost management.

Ultimately, Cummins looks like one of the handful of large-cap names that's emerging from the recession with materially more attractive operations than it had before. The company's powerful brand should keep significant customers around, and a push toward increasing international engine sales should increase top-line growth in 2011 and 2012.

Cummins' management team announced a 52.38% dividend hike last week, bringing the firm's quarterly shareholder check to 40 cents per share. Investors should keep their eyes on this company's July 26 second quarter earnings call.

Cummins shows up on recent lists of 3 Funds' Best Stock Picks Ahead of Earnings and Stocks Poised for a Second-Half 2011 Rebound.

Paccar

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That brings us to one of Cummins' major customers -- Paccar ( PCAR), a manufacturer of light to heavy-duty trucks that sport the well-known Peterbilt, Kenworth, and DAF names. The company is another of last week's dividend-increasers, with a 50% hike in its payout announced last Monday.

Like Cummins, Paccar has significant exposure to the industrial sector, with demand for trucks largely dependent on freight volume, construction, and manufacturing output. That said, Paccar's respected brand names and heavy overseas exposure spared the company from significant problems during the recession. Looking forward, innovation in the firm's truck offerings should play well to the aging worldwide truck fleet. From a financial standpoint, Paccar looks strong. The company has a well-capitalized balance sheet with a manageable level of total debt and nearly $2.7 billion in cash and short-term investments. Paccar's dividend should continue to perform for investors in 2011 and beyond.

Paccar is one of the highest-yielding automotive stocks.

Cliffs Natural Resources

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$14.5 billion iron ore producer Cliffs Natural Resources ( CLF) is one of the biggest names in the game, supplying approximately half of the smelting demand in the U.S. and Canada. Shareholders have been well rewarded year-to-date in 2011 -- shares have rallied nearly 30% since the first trading day of January. Thanks to last week's 100% dividend hike, that rate of return just got another bump higher.

Cliffs has benefited immensely from the commodity boom that's trickled down to nearly all of the hard commodities in the last few years. As institutional and retail investors alike seek out alternative asset classes to pour capital into, options like iron ore and coal are getting bid up to Cliffs' benefit. That's pretty fortuitous timing given the slowing demand brought on by the recession in the short-term.

Profit margins have been expanding consistently over the past few years, giving the firm more than adequate cash to cover its minimal debt service costs in 2011. While this firm's 1.12% yield hardly qualifies it as a dividend stock, investors shouldn't rule out this fast-growing iron play.

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Plains All American Pipeline

Master limited partnership Plains All American Pipeline ( PAA) is an investment vehicle that was basically designed to generate income from the storage and transportation of petroleum and natural gas. As a result, Plains sports a massive dividend payout and frequent appearances on this list of dividend increasers. Don't be fooled by the small 1.3% increase in PAA's payout last week -- the company's 6.1% yield is staggering right now.

Plains' business is built on the consistent demand for crude oil and natural gas in the middle states, operations that benefit from a deep economic moat given the fact that Plains itself owns the infrastructure that transports that lifeblood to the Midwest. While the business can be complex, the firm's management team has proven adept at making meaningful acquisitions and hedging against downswings in the company's commodity exposure.

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Because of PAA's structure as an MLP, the stock sports a relatively scant balance sheet, opting instead to pass through the vast majority of its income to unit holders. The firm's income is consistent, and growth has remained positive throughout the recession -- unit holders can count on financial stability in this high-yield stock.

KLA-Tenor

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California-based semiconductor supplier KLA-Tenor ( KLAC) is one of the world's biggest manufacturers of equipment used in the creation of integrated circuits. That means that KLA had heavy exposure to the recent downturn in semiconductor stocks - and the semiconductor manufacturing halt that accompanied the depths of 2008's recession. As the industry restarts its engines, KLA should continue to climb back to its past sales numbers.

Thanks to a massive store of valuable intellectual property, KLA has significant competitive advantages over peers. As a result, the firm boasts a large, sticky installed base. Even though the recession heavily impacted KLA's revenue stream, profitability levels have returned to pre-crisis levels. That increased profitability is helping to boost KLA's increased payouts to shareholders.

Last week, management announced a 40% dividend increase, bringing the firm's total payout to 35 cents per share. That represents a 2.3% yield at current price levels.

KLA is on of the top holdings of David Tepper's Appaloosa Management.

Targa Resources Partners

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Another MLP boasting a dividend increase last week is Targa Resources Partners ( NGLS), a natural gas producer that currently sports a 6.45% yield thanks to last week's 2.2% dividend increase. The move brings Targa's payout to 57 cents per share.

Targa sports some very attractive attributes from an income generation standpoint. For starters, the company's MLP status means that the firm is paying out the vast majority of its income to unit holders each quarter, a feature that reduces investors' tax implications. Targa also has solidified its cash flows, giving the company a more predictable income stream in 2011.

But the really attractive attribute about this stock is its exposure to natural gas right now. As a commodity, natural gas prices have trailed other fuel sources, making them comparatively more attractive. Wall Street has been buying into that argument of late, pushing up the value of Targa's natural gas gathering operations - and in the short-term, the spread that the company earns on processing it. A healthy balance sheet should help keep Targa's dividend running smoothly for the foreseeable future.

For the rest of this week's dividend stocks, check out the Dividend Stocks for the Week portfolio on Stockpickr.

And if you haven't already done so, join Stockpickr today to create your own dividend portfolio.

-- Written by Jonas Elmerraji in Baltimore.  

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At the time of publication, Elmerraji had no positions in stocks mentioned.

Jonas Elmerraji is the editor and portfolio manager of the Rhino Stock Report, a free investment advisory that returned 15% in 2008. He is a contributor to numerous financial outlets, including Forbes and Investopedia, and has been featured in Investor's Business Daily, in Consumer's Digest and on MSNBC.com.

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