If a company wants to get noticed and convey management's confidence in its future, a big dividend hike is a great way to stand out.

That increase means more than just a fatter payout for shareholders. It suggests that the company's leaders are comfortable committing more of their expected annual income to those payments. If they thought there was even a small chance that they'd have trouble coming up with the money, they wouldn't raise the dividend. Big hikes signal stability.

After a few years of brutal cuts, more companies have finally begun to increase their dividends. According to Standard & Poor's, as of mid-May, there had been 123 dividend increases among S&P 500 companies, versus just two reductions. The total paid in dividends rose by more than $9 billion. Last year at this time was quite different, with 79 increases and 63 decreases.

Naming names
Which companies are clearing their throats as loudly as they can? Here are just some of many recent big hikers:


Recent Dividend Increase

Forward Dividend Yield*

5-Year Avg. Annual Div. Growth Rate





Union Pacific (NYSE: UNP)




McKesson (NYSE: MCK)




Lowe's (NYSE: LOW)




Dr Pepper Snapple (NYSE: DPS)




Coach (NYSE: COH)




Data: Yahoo! Finance.
* Based on increased dividend.
** Neither company paid a dividend five years ago; Dr. Pepper Snapple was spun off from Cadbury Schweppes in 2008.

Let's take a closer look at why these companies are able to raise dividends. IBM works not just in its well-known hardware business, but also in higher-margin segments such as software and consulting. Its net income has grown at a 13% annual clip over the past five years.

Reflecting an economic upturn since the recession, dividend standout Union Pacific recently reported that quarterly net income rose 45% over year-ago levels, as the company started to bring back many furloughed employees. Railroad industry bulls see rising demand and prices, amid successful cost-cutting.

McKesson has benefited from increased sales of generic drugs and flu treatments. Despite the recent tough year, it has seen its margins rise and recorded one of its highest levels of bookings.

Lowe's has seen its business improve lately, thanks to an increase in home improvements and big-ticket purchases, warmer weather, and even government stimulus programs, including reimbursements for energy-efficient appliance upgrades.

Dr Pepper Snapple has found itself in an enviable position, as Coca-Cola and PepsiCo fight for the rights to distribute its soft drinks. Its Dr Pepper brand, meanwhile, was one of the best-performing soft drinks last year.

An upswing in the economy has also boosted Coach. The company is expanding its luxury offerings into China and elsewhere, and saw earnings come in above estimates.

Promising payout prospects
Already, these companies offer yields that beat many other options, such as CDs and bank accounts. If they continue these robust increases, they'll soon show up on the radar of investors who screen for hefty yields of, say, 3% or more. IBM has quintupled its dividend over the past decade, for example, and even younger high-tech companies have started to mature and pay higher dividends. 

Also, none of the companies above has a payout ratio greater than 40%. That suggests that they have plenty of room to keep increasing payouts at a good clip for a while, and can sustain them into the future.

As you scour the stock market for compelling buys, pay attention to attractive dividend payers -- especially companies aggressively (but responsibly) raising their payouts. They're trying to send you a message, loud and clear. All you have to do is listen.