Following a two-plus decade lull, dividend investing suddenly found itself hot again in 2010. With economic uncertainty continuing for a third straight year, tried and true stocks with steady payouts have been looking better than ever lately.

And it's easy to see the appeal. Dividend stocks that raise payouts year after year guarantee higher returns than any savings or money market portfolio. These stocks can produce gains even in a static market -- just a few percentage points in dividend yield can net you a tidy little sum even in a static market.

As such, they're a boon to investors looking to hedge their bets as they ready themselves for inflation and bond market volatility.

But for all the advantages, dividend investing can be frustrating if you're looking for sizable gains. This is largely because investors tend to gravitate toward large blue-chip stocks offering safety, but not much in the way of profit margins.

An alternative is to look for quality small-cap dividend stocks, which offer greater potential for large capital gains. Your risk is minimized, but the rewards can be major -- the best of both possible worlds in this day and age.

If you're looking for dividend stocks to add to your portfolio, consider small-cap stocks that have consistently raised payouts and increased share price. To help you get started, we crunched the numbers for you. (Click here to access free, interactive tools to analyze these ideas.)

Here is a list of four small-cap stocks with a track record of raising dividends:

Company

Ticker

Industry

Market Cap (in Millions)

Dividend Trends

Connecticut Water Service (Nasdaq: CTWS) CTWS Water Utilities 210.97 Aug 2008 dividend declared at $0.223 per share, increased to $0.228 in Aug 2009, increased to $0.233 in Aug 2010
First of Long Island (Nasdaq: FLIC) FLIC Regional Banks 230.02 Sep 2008 dividend declared at $0.18 per share, increased to $0.20 in Sep 2009, increased to $0.22 in Sep 2010
Middlesex Water Co. (Nasdaq: MSEX) MSEX Water Utilities 273.52 Oct 2008 dividend declared at $0.178 per share, increased to $0.180 in Oct 2009, increased to $0.183 in Oct 2010
York Water Co. (Nasdaq: YORW) YORW Water Utilities 200.38 Aug 2008 dividend declared at $0.121 per share, increased to $0.126 in Aug 2009, increased to $0.128 in Aug 2010

Interactive Chart: Press Play to see how the market caps have changed for all the stocks mentioned above.


Disclosure: Kapitall's Eben Esterhuizen and Alicia Sellitti do not own shares of any companies mentioned.

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