Over the past six months, the mood of the market has gone from gloomy to exuberant. Yet despite all the good news upon which many investors have pinned their future hopes for investment gains, dividend-paying stocks continue to fight an uphill battle against the economic realities their businesses face right now.

Last week, Standard and Poor's reported that the number of stocks increasing their dividends during the third quarter of 2009 was the lowest ever for a July to-September period. Only 191 raised their dividends over the past three months, while 113 stocks saw their dividends cut -- a 27-year-high for the quarter.

Adding insult to injury
If you're trying to draw income from your portfolio, the latest gloomy news on the dividend front just adds to the dire situation you've been facing for months. Consider all the challenges that income investors have to deal with right now:

  • Interest rates are near historic lows, with most safe investments like Treasury bonds and bank CDs producing far less income than they did two years ago.
  • Although corporate bonds have rebounded from their fall during 2008, those who are just now trying to buy those bonds must pay premium prices for yields that are substantially lower than they were just months ago.
  • Even companies that would have looked invulnerable to dividend cuts just a year or two ago have slashed their payouts with alarming regularity. Last quarter's dividend casualties included Avery Dennison, which had previously increased dividends in each of the past 32 years.
  • Meanwhile, some companies are building much less appealing streaks. Both Morgan Stanley (NYSE:MS) and Weyerhaeuser, for example, paid investors smaller dividends in each of their past two payouts.

If you're starving for income from your investments, then pretty much the only good news you've seen lately is the stock market's rally. At least you can sell some of your shares to generate much-needed cash without feeling like you're panic-selling at the bottom of the market.

When will it get better?
The real question, though, is when some of the companies that cut dividends will start increasing them again. Although some companies that reduced their payouts, such as Harley-Davidson, appear to be in decent shape and have room to push them back up, many others are still in bad shape, at least for now:

Stock

Dividend Cut

Current Payout Ratio

Harley-Davidson

70%

53%

Wells Fargo (NYSE:WFC)

85%

153%

US Bancorp (NYSE:USB)

88%

161%

JPMorgan Chase (NYSE:JPM)

87%

384%

Source: Yahoo! Finance.

Until earnings show clear signs of improvement, companies may remain reluctant to push their dividend payouts back up. The last thing any company would want is to have to whipsaw shareholders by cutting dividends again after restoring them to their previous levels.

Stick with the strong
As appealing as it might look to hope that past dividend payers will boost their payouts, you'll probably do better investing in companies that never made dividend cuts in the first place. Goldman Sachs (NYSE:GS), for instance, maintained its modest payout throughout the financial crisis, and although the current yield is less than 1%, Goldman's 31% payout ratio means that earnings could easily sustain a higher dividend in the future.

Similarly, several long-standing dividend stocks are managing to raise their payouts even during tough times. Lockheed Martin (NYSE:LMT), McDonald's (NYSE:MCD), and Texas Instruments all announced increases to their dividends. Although there are no guarantees, you can gain some confidence that these companies believe they'll be able to sustain higher payouts even in an uncertain economy.

As helpful as they've been to investors over the years, dividend-paying stocks have caused a lot of pain recently. Rather than counting on a rebound among the stocks that have fallen from grace, however, you'd be better off investing in the tried and true stocks that have already successfully weathered the biggest test that dividend payers have faced in generations.

If you want to find top stocks that pay dependable dividends, Selena Maranjian has what you're looking for. Find out where she discovered 100-year dividend stocks.

Fool contributor Dan Caplinger knows dividends will always be in style. He doesn't own shares of the companies mentioned in this article. Try any of our Foolish newsletters today, free for 30 days. The dividends you get from The Fool's disclosure policy are priceless.