Dividend stocks give investors exactly what they want right now. With healthy current income combined with the potential for capital appreciation, the total returns from dividend stocks look increasingly attractive -- especially in a flat market that could turn choppy at any moment.
If you're looking for top dividend stocks, though, the most important thing to seek out is a company that puts its money where its mouth is by increasing those dividends. Once a company makes an initial commitment to pay a dividend at all, the next logical step is for it to make that payout grow over time -- typically, in lockstep with sales and earnings growth that the company enjoys.
The best dividend raisers in 2011
To ferret out those stocks, I started with a simple screen: I looked at S&P 500 stocks and sought out the ones that had boosted their payouts the most during 2011. To weed out stocks like JPMorgan Chase that made huge increases from low levels that reflected past cuts, I added two more conditions: a dividend yield of at least 2% and dividend levels at least as high as they were five years ago.
I'll go into further detail on the six stocks that made the list.
Going for the gold
Two mining stocks made the list. Newmont Mining more than doubled its dividend during 2011 with three increases, going from $0.15 to $0.35 per share. The stock now has a 2.3% yield. Meanwhile, Freeport-McMoRan Copper & Gold (NYSE: FCX) boosted its payout 67% to $0.25 per share, yielding 2.6%.
Interestingly, dividends among mining stocks have historically been fairly rare, as most miners need as much of their profits as possible to reinvest into capital-intensive mining operations. But the largest miners, such as Newmont and Freeport, have some flexibility to return capital to investors.
Of these two stocks, Newmont is more interesting from a dividend standpoint. It has specifically tied its payout to the price of gold, so with gold having fallen recently, Newmont may well end up seeing its dividend shrink when it declares its payout for the first quarter of 2012. Freeport, on the other hand, has major exposure to copper as well, and it has taken a more traditional approach toward its dividend. Both companies have healthy earnings that adequately cover the dividend, so a reversal isn't necessary for their financial survival by any stretch.
Riding the train
Two railroad companies also qualified. CSX (NYSE: CSX) pushed its payout up 38% to $0.12 per share, yielding 2.1%, while Union Pacific (NYSE: UNP) made two boosts totaling 58%, as the stock now yields 2.2%, paying $0.60 per share quarterly.
Both stocks have benefited from the resurgence in rail transport. CSX and Union Pacific are part of a foursome of railroad stocks that collectively control about 90% of the U.S. market, giving them effective oligopolistic pricing power. With strong demand for the types of goods that railroads typically transport, it's only logical to see the railroads thriving -- and it's good to see Union Pacific and CSX sharing the wealth.
Striking oil (and gas)
Another big dividend raiser has been Williams (NYSE: WMB). The company has boosted its dividend twice in the past year, with the payout now double what it was in late 2010. Its $0.25 dividend now represents a 3.7% yield.
The company also made another shareholder-friendly move, spinning off WPX Energy, its exploration and production unit. Now, Williams has focused on the energy midstream, with its pipelines and processing assets. With all the new production throughout the U.S., Williams is in a good position to profit from high demand.
Driving dividend growth
Finally, Paccar (Nasdaq: PCAR) raised its dividend 50% to $0.18 per share. It now yields 3.5%.
As a truck maker, Paccar may seem out of tune with economic trends toward rail and away from trucking. But the company has pushed hard into emerging markets, where growth is stronger. With confidence in its growth, a higher dividend makes plenty of sense.
Get paid
In a tough stock market environment, it's more important than ever to get the returns you need any way you can. Dividend stocks let you profit two ways -- and the best ones can make a huge difference to your investing results.
If you want even more strong dividend stocks, we've found 11 powerful stocks -- and we're naming names. You'll find them in The Motley Fool's latest special free report on dividends. But don't wait -- get your free copy right now and start the year off right.
