Wouldn't it be great to get paid for holding a stock, even while the market clobbers its price?

You can, of course -- if the stock pays dividends. While much of the news in recent months has gone to companies that have slashed or altogether eliminated their payouts, plenty still pay dividends -- and some have even raised them recently, despite the economy.

Yes, raised. Think that might be a buy signal?
It often is. Although rising dividends aren't always a good sign -- doomed investment bank Lehman Brothers raised its dividend 13% early in 2008, a hike that it clearly couldn't afford -- a company that raises dividends is generally feeling pretty good about its prospects.

If, of course, the feeling is backed up by a look at fundamentals. Can the business support an increased payment? Is its cash flow sustainable, even in the face of a dark economy? If you can answer "yes" to those simple questions, then the company is worth serious consideration.

The case for dividend stocks
Dividend investing may seem old-fashioned, but in this sort of market, finding a company that is paying a good dividend can be a very good thing. It's a distinctive thing, too -- according to Standard & Poor's, which tracks over 7,000 public companies, only 233 increased their dividends in the second quarter of 2009. That's a record low.

Dividends, of course, are a company's way of sharing profits with its owners -- the folks who hold its stock. The stream of payments, usually made quarterly, is often expressed as the company's dividend yield, which is simply a year's worth of dividends expressed as a percentage of the current stock price.

In good economic times, a dividend yield of 2% is considered solid -- but nowadays, with stocks across the market still down from their bull market highs, it's not uncommon to see dividend yields of 3% or more -- sometimes a lot more -- from conservatively run companies. If the company can sustain its dividend, that yield represents money you'll be making no matter what happens to the stock price.

Putting the cash to work
If you're in retirement, dividends can be a helpful part of your overall income picture. If you're in wealth-building mode, reinvesting those dividends -- using them to buy more shares of the stock -- allows you to take advantage of dollar-cost averaging without having to add to your initial investment.

And here's a secret: Reinvested dividends have built an awful lot of fortunes over the years. Dividend-paying companies might seem boring compared to, say, fast growers, but those steady payouts through bull and bear markets can really pile up over time.

Who's paying the big bucks?
Finding a good company paying a sustainable dividend is a good thing. Even better, as I mentioned above, are companies confident enough about their prospects to raise their dividend payments in this market. Here are a few companies that have done just that in recent months:


CAPS Rating (out of 5)

Current Dividend Yield

Size of Recent Dividend Increase

Abbott Labs (NYSE:ABT)




Enterprise Products Partners (NYSE:EPD)




General Mills (NYSE:GIS)








Kellogg (NYSE:K)




Procter & Gamble (NYSE:PG)




Target (NYSE:TGT)




Data from Motley Fool CAPS and Yahoo! Finance as of July 28, 2009.
*Kellogg's increase will take effect in September.

Some of those companies are perennial dividend champions -- IBM has raised dividends at least once a year for the last 14 years, Abbott for the last 37, Procter & Gamble for the last 53 … impressive results from three old-line blue chips that are continuing to show strength despite the current economy.

Keep in mind, though, that those kinds of streaks can backfire. Sometimes companies that can't really afford increases (or dividends at all) make them anyway because no management team wants to break the streak. General Motors kept their dividend payments going for far longer than was reasonable, for example, and of course, Lehman Brothers announced an increase at a moment when savvy outsiders were already worried about its impending doom.

One other caveat before you go looking for big yields: A super-high dividend yield could be a bad sign. Because the yield represents past dividend payments as a percentage of today's stock price, a high yield can sometimes be a sign of a company in deep trouble, one whose share price has fallen significantly -- and companies in trouble that aren't named "Lehman" tend to cut their dividends or eliminate them entirely.

Building a high-yield stock portfolio
That said, the market's struggles leave us with one heck of an opportunity to build a complete dividend-powered portfolio at discount prices. There are solid, bargain-priced companies paying sustainable dividends in nearly every corner of the market. A diversified portfolio of 10 to 15 of these stocks from different industries could be just the thing to carry your IRA through the recession -- and beyond.

Want a great way to get started that won't cost you anything? Good companies with good fundamentals and sustainable dividends are what James Early and team look for at our Motley Fool Income Investor service -- and they're finding lots of them right now. If you'd like to see their best bets for new money now, help yourself to a 30-day trial, completely free of charge. Just click here to get started. There's no obligation to subscribe.

This article was originally published on March 24, 2009. It has been updated.

Fool contributor John Rosevear loves great dividend stocks and owns a bunch, including Enterprise Products Partners. Enterprise Products Partners and Procter & Gamble are Motley Fool Income Investor recommendations. The Fool owns shares of Procter & Gamble. The Motley Fool has a disclosure policy.