7 Dividend Stocks That Want to Pay You More Money

BALTIMORE (Stockpickr) -- It's earnings season -- and for dividend investors, it's about the possibility of a dividend hike every bit as much as it is about lifting the curtains on corporate profits.

Typically, dividends and earnings season go hand in hand. That stands to reason -- after all, it's those corporate profits that are (ideally) fuelling a company's dividend payouts. And now, with corporate profits sitting at all-time highs, income investors are in a good position to get paid more cash in 2012.

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While many investors still think of dividends as a tradeoff from capital gains, it's just not the case. Pure and simple, more cash payouts from dividends equal greater total returns on a historical basis.

Over the last 36 years, 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, according to data compiled by Ned Davis Research. The numbers are even more compelling when looking at companies that consistently increase their payouts.

That's why we pay close attention to the firms that are shoveling more corporate cash to shareholders. With that, here's a look at seven stocks that hiked payouts in the last couple of weeks.

Procter & Gamble

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You can't find a stock that fits the high-yield blue-chip mold much better than Procter & Gamble ( PG). The $183 billion consumer products maker owns some of the most well-defended brands on grocery store shelves, and also manages to yield 3.3%. That yield is a bit bigger now after last week's 7.05% dividend hike.

Procter's portfolio of brands include household names such as Tide, Pantene and Cover Girl, names that offer investors the combination of better customer stickiness and preferential treatment on store shelves. That combination makes P&G's business defensible, especially as the economy continues to show that it's growing. That being said, Procter's scale makes it tough for the firm to find meaningful growth here at home; it makes a lot of sense for the company to continue to focus on growing its already successful brands abroad.

Another source of profit growth is internal. The firm has been working on major cost reduction initiatives in the past few years, promising to grow margins by cutting down on the cost of goods sold. Even though P&G has an uphill battle right now coming from input costs, management should be able to achieve palpable margin expansion by trimming costs on other parts of the business.

With a hefty yield and an unblemished track record of returning cash to shareholders, P&G makes a solid core holding for investors.

Procter & Gamble is one of 12 Highest-Rated Consumer Stocks Picked by S&P. I also highlighted it recently in " 5 Big Stocks to Trade for Gains."

Goldman Sachs

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Needless to say, Goldman Sachs ( GS) has faced an uphill battle in public relations for the last several years (particularly this year), and that sentiment has worked its way into the market for shares of the world's most villainized public company. Investors should frankly have some major concerns about the target on Goldman's back, whether it's justified or not. A reputation for exploiting customers isn't going to win any friends when Goldman competes for business with increasingly aggressive rivals -- so now more than ever, the firm needs to be contrite and work towards rebuilding its image.

Goldman is one of the few firms left out there that's got a "legacy" investment bank business model. The firm is still one of the biggest investment banks out there, a lucrative business that generates impressive returns for shareholders. But the business isn't what is used to be; underwriting tends to ebb and flow with market levels, and with investor anxiety creeping back up, firms like GS could be in store for choppy investment banking revenues.

At the same time, a tougher trading environment and stricter government regulation (the result of GS' restructuring to a bank holding company) means that the trading profits of yore aren't likely to grace the firm's income statement quite the same way.

But while Goldman's business is less attractive than it used to be, it's still pretty attractive. The firm is a major player in a business with huge barriers to entry, a fact that all but guarantees solid financial performance quarter after quarter as long as Goldman can reign in its risk exposure.

That financial strength is part of the reason for the firm's 31.4% dividend increase this week. The move brings GS' yield to 1.62% at current levels. Ultimately, I think this stock lacks a compelling reason to buy right now.

Goldman, one of Fairholme Capital Management's holdings, also shows up in Third Point's portfolio as of the most recently reported period.

Southern Corporation

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Electricity utility Southern Corporation ( SO) serves more than 4.4 million customers in the southeast, boasting more than 43,500 megawatts of generation power across its portfolio of power plants -- a 3.7% dividend increase at the start of this week should help get investor eyes focusing on this stock . The move ratchets Southern's dividend yield to a very impressive 4.3%.

There's good reason why income investors love utilities. Utility stocks pay hefty yields, they operate understandable businesses, and they're boring. In this case, boring is a good thing; it means that profits tend to be predictable and less susceptible to economic headwinds than most businesses. That's a crucial combination for a dividend payer.

Even though Southern's merchant energy arm adds some risk onto the firm's earnings, management hasn't given investors reason to treat SO unlike any other utility name. At the same time, the firm is in solid financial shape, boasting less debt than peers. For the capital-intense utility industry, debt can be the deciding factor in profitability -- Southern's solid balance sheet should keep the dividend payouts flowing for the foreseeable future.

This stock makes for a solid core income holding in 2012.

Southern, one of 10 Stocks That Will Let You Retire, shows up on a list of Utilities Stocks Bought and Sold by Hedge Funds for the most recently reported quarter.

Kinder Morgan

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Want to make money in natural gas? Don't buy the commodity -- instead, buy the pipelines.

$30 billion gas pipeline stock Kinder Morgan ( KMI) is one of the latest firms to announce a dividend increase, hiking its payouts by 3.2% on Wednesday. While that increase sounds pretty meager, it's a bit misleading. KMI currently yields 3.38%, so while this week's increase isn't huge, it's piling a little more onto what's already a strong payout.

Capital gains have been equally impressive for KMI shareholders: In the year and change that this firm has been public, shareholders have seen gains of close to 20%. Combined with the firm's reinvested dividend payout, shareholders who bought into this general partner early could be sitting on gains as high as 27% over that period.

KMI is basically a holding company that owns the general partner and incentive distribution rights for Kinder Morgan Energy Partners (KMP), an MLP; in other words, it's an investment vehicle that's designed to maximize distribution income for investors. And while we're on the subject, right now, high short interest from a pending acquisition also makes KMI a solid short-squeeze candidate in 2012 (see my recent " 5 Big Stocks Everyone Hates -- Buy You Should Love").

Dividends and a short squeeze could be an unbeatable combination for the rest of the year.

Travelers

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It's been a pretty mixed year for shareholders of insurance giant Travelers ( TRV) in 2012. Shares have struggled to keep pace with the broad market, climbing just 4.2% since the first trading day of January, and while relative strength has turned up for shares in the last month, investor anxiety across the whole market could keep this stock off of people's radar.

But TRV's dividend won't; during yesterday's earnings call, the firm announced a 12.2% hike to its quarterly payout. That brings this insurer's yield to 2.66%.

Travelers has historically been a conservative insurance firm, keeping a strong handle on risk in the years leading up to the financial crisis, and avoiding the losses seen by some of its peers as a result. While that kept this stock on most investors' "boring" list, it's a qualifier that I'd argue most insurance company shareholders should be on the lookout for. Also key to Travelers' success is its network of more than 10,000 brokers and agents -- that large sales force, spread across a similarly large geographic area, has been a big driver of the firm's product growth in the past. While the nascent direct-to-consumer business offers TRV attractive margins, the company would do well not to forget its salespeople.

From a financial standpoint, Travelers is still in strong shape. As long as good risk management practices take priority over top-line growth, investors should get rewarded in the long-run.

TRV's dividend payout makes it a strong choice for investors looking for insurance company exposure right now.

Travelers, one of Greenlight Capital's holdings, shows up on a list of 5 Buy-Rated Insurance Stocks for Long-Term Investors.

AON

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Another insurance name that hiked its dividend payouts last week is AON ( AON), a $16 billion insurance broker that also has a risk management and human resources consulting business. Yesterday, AON announced a 5% dividend increase, bringing its quarterly payout to 15.75 cents per share. That marks the first dividend increase in a decade for AON shareholders and brings the firm's yield to 1.2%.

AON has made leaps and bounds in the last ten years, recovering from accounting issues back in 2002 and stabilizing its business just in time to get hammered by the financial crisis and ensuing recession. While AON hasn't enjoyed the fruits of its labors due to unfavorable market conditions, the London-based firm is a remarkably different company from what it was in the 2000s.

Financially, AON does have fairly aggressive balance sheet leverage, the result of an acquisition that effectively doubled the firm's scale back in 2010. While the firm's debt load doesn't preclude it from profitable performance in 2012, that and a relatively low yield keep it from achieving core income status. Between the two, Travelers offers much cleaner exposure to insurance-driven income.

AON shows up on a list of JPMorgan's 24 Stocks That Are More Attractive Than Apple.

PPG Industries

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Last up this week is industrial manufacturer PPG Industries ( PPG), a $15 billion firm that produces chemicals, coatings, and glass products. PPG is one of the biggest names in the normally lucrative coating business, a unit that's been challenged by headwinds that have limited production at the other industrial manufacturers that PPG calls its customers.

With industrial numbers ticking up in 2012, that drag is finally getting taken off PPG's top line.

So should the firm's emerging market exposure - right now, around a quarter of PPG's sales come from the emerging markets, a fact that should help the firm capture growth outside of the largely-saturated U.S. market for its products. At the same time, PPG is tackling its bottom line with a new restricting plan that promises to save significant costs over the next several years. While that's hardly a novel strategy for an industrial manufacturer, the proven approach should help beautify PPG's income statement.

PPG currently sports a solid balance sheet, with ample liquidity and a reasonable debt load. At the same time, massive cash generation abilities should help the firm pay down debt while continuing to shell out cash to shareholders in the form of dividends. Yesterday, the firm announced a 3.51% increase in its quarterly payout, bringing its yield to 2.26% at current prices.

PPG shows up on a list of 10 Stocks to Own During a Dividend Bubble.

To see these dividend plays in action, 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, author 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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