Stock Quotes in this Article: CME, FL, LO

BALTIMORE (Stockpickr) -- With corporate balance sheets sitting flush in 2011, management teams are opting en masse to return some of that cash to shareholders in the form of dividends.

Returning value to shareholders is a smart decision given the market tumult of the last several years. With retail investors still reeling from anxiety-inducing volatility, dividend payouts show that management is beholden to the company’s real owners: investors.

Even though dividends are a way of providing returns when the market becomes out of synch with a stock’s fundamental factors, don’t think that dividends and capital gains are mutually exclusive. In fact, historically, the two have been highly correlated.

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    Over the last 36 years, dividend stocks outperformed the rest of the S&P 500 by 2.5% annually, and they outperformed nonpayers by nearly 8% every year, all while paying out cash to their shareholders, according to a study from NDR. And while that statistic applies to all companies that pay dividends, the companies that increase those dividend payouts over time are even better.

    That’s why, each week, we take a look at the companies that increased their dividend checks to shareholder in the last five trading days. Here’s a look at this week’s dividend stocks with recent dividend increases.

    CME Group

    One of the most-storied financial firms in the world, CME Group (CME) has roots that go all the way back to the first futures and options exchange North America in 1848. Today, the CME Group is the result of a merger that combined the forces of the Chicago Mercantile Exchange, the Chicago Board of Trade, and the New York Mercantile Exchange in the last few years. The company announced a 21.7% dividend increase last week, bringing its quarterly payout to $1.40 per share -- a 1.82% yield at current price levels.

    In the futures trading world, CME is the standard bearer. The firm’s markets host more of the world’s futures trading activity than any other organization, and it provides data and trading platform solutions for end users. As retail investor interest in futures products has increased, CME’s earnings have grown in kind, a factor that suggests the firm could benefit from the disconnect between stocks and commodities that’s been sending increased liquidity to CME’s markets. The company has also met investors in the middle, expanding its over the counter derivatives business, which is a significantly more accessible market for retail traders.

    While competition is fierce in the securities exchange business -- particularly given the proposed consolidation taking place with pseudo-competitor NYSE Euronext (NYX) right now -- CME has historically done a good job of defending its turf. With the most powerful “old guard” market participants already invested in CME (both figuratively, and literally) the firm should continue to be an impressive performer in 2011.

    As of the most-recent reporting period, CME comprises 2.5% of the portfolio of John Griffin's Blue Ridge Capital and 3.3% of theportfolio of the Children's Investment Fund. JPMorgan included it as one of its13 favorite stocks for 2011.

    Foot Locker

    Increasing consumer confidence is proving beneficial for apparel retailers such as Foot Locker (FL), which have been slowly enjoying increases in same-store-sales and expanding margins. With free cash flow ticking higher amid better top-line results, Foot Locker decided to increase its dividend payouts, bringing the quarterly shareholder checks to 16.5 cents per share. That gives the company a heft 3.37% dividend yield right now.

    Traditionally, Foot Locker has been a successful athletic footwear retailer -- success that the company has shared with its shareholders in the form of a very large payout ratio (the percentage of net income paid out in the form of dividends). Despite the challenges of the last few years, management has opted to increase its dividend consistently since 2003, as such investors who bought the stock back in 2003 are sitting on yields in excess of 7% today.

    Thanks to the recovery in consumer spending, Foot Locker’s biggest challenge right now is competition. Though the company is the biggest in the industry, margins are relatively thin and size doesn’t equal pricing power over major suppliers like Nike (NKE), which actually have the power in the relationship. The decision to add a larger mix of private label brands to its shelves should help boost margins and add negotiating leverage to Foot Locker’s side of the table.

    Foot Locker is one of the top holdings in the portfolio of Robert Rodriguez' FPA Capital. It was one of the 10 top retail stocks of 2010.

    Lorillard

    With considerable risks from the FDA’s investigation into menthol cigarette products pressuring share prices, and continual dividend increases, Lorillard (LO) has one of the most impressive dividend yields in the industry, at 6.73%. Last week’s 11.1% dividend hike is certainly a contributing factor to that hefty payout.

    But Lorillard is hardly on easy street right now. It all comes down to the FDA investigation -- and the effects that any decision might have on the sale of the company’s flagship Newport brand. Even though Lorillard has opted to cover its bases by offering a non-menthol version of Newports, the revenue effects of an outright ban on menthol cigarettes would be catastrophic for the firm. That said, few analysts expect such a drastic decision from the FDA, and Lorillard’s business is unlikely to be heavily impacted.

    The FDA’s upcoming decision is already prices into shares, and a favorable outcome is likely to spur buying, lowering the firm’s effective yield. For income-seeking investors willing to take on a bit more risk, this stock may be an attractive choice.

    Lorillard is a top holding in Renaissance Technologies' portfolio, comprising 1.5% of the total portfolio. It showed up on a recent list of 10 dividend stocks with upside, and it's one of TheStreet Ratings' top-rated tobacco stocks.

    For the rest of this week’s dividend stocks, check out the Dividend Stocks for the Week portfolio on Stockpickr.

    And if you haven't already done so, join Stockpickr today to create your own dividend portfolio.

    -- Written by Jonas Elmerraji in Baltimore.

    RELATED LINKS:

    >>Top 10 Warren Buffett Dividend Stocks
    >>5 Dividend Stocks for Any Portfolio

    >>6 Stocks With Big Insdier Buying, Selling

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    At the time of publication, author had no positions in stocks mentioned.

    Jonas Elmerraji, based out of Baltimore, is the editor and portfolio manager of the Rhino Stock Report, a free investment advisory that returned 15% in 2008. He is a contributor to numerous financial outlets, including Forbes and Investopedia, and has been featured in Investor's Business Daily, in Consumer's Digest and on MSNBC.com.