Stock Quotes in this Article: MAT, PCG, RAI, WM, KMI

BALTIMORE (Stockpickr) -- After the roughly 30% rally the S&P 500 Index pushed out in 2013, you'd be forgiven for ignoring dividend stocks. Capital gains, not dividend payouts, ruled the roost last year. And they gave investors the biggest single-year gains since 1997.

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But as 2014 enters its second trading session, I've got an important warning for investors: Eschew dividends at your own peril.

Over the last three and a half decades, dividend stocks have 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, based on data compiled by Ned Davis Research. The numbers are even more compelling when looking at companies that consistently increase their payouts.

With a record $1.25 trillion in cash held by the companies that make up the S&P 500 right now, there's a lot of dry powder sitting on the sidelines ready to get shelled out. And with limited options to deploy those mammoth cash reserves right now, dividends continue to be an obvious choice.

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To take advantage of that trend today, we're focusing on dividend stocks that look ready to hike their payouts. So instead of chasing yield, we'll try to step in front of the next round of stock payout hikes.

For our purposes, that "crystal ball" is composed of a few factors: namely a solid balance sheet, a low payout ratio and a history of dividend hikes. While those items don't guarantee dividend announcements in the next month or three, they do dramatically increase the odds that management will hike their cash payouts.

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Without further ado, here's a look at five stocks that could be about to increase their dividend payments in the next quarter.

Kinder Morgan

First up is $37 billion gas pipeline stock Kinder Morgan (KMI). To be fair, KMI is as close to a "gimme" on the dividend front as it gets. The firm is technically a holding company that owns the general partner and incentive distribution rights for Kinder Morgan Energy Partners (KMP) and El Paso Pipeline Partners (EPB), two MLPs; in other words, it's an investment vehicle that's designed to maximize distribution income for investors. That's good for a whopping 4.57% dividend yield at current prices.

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One of the biggest tailwinds for KMI right now is the popularity of natural gas. As gas remains historically cheap vs. alternatives such as crude oil, nat gas volumes should continue to tick higher -- and KMI's midstream energy assets should continue to ring in fees. Otherwise, commodity prices have a pretty small impact on the midstream business, which simply charges for transportation without a lot of exposure to the price of nat gas in the market.

One of the big benefits of KMI (besides the fact that it's the largest midstream company out there) is that it's a conventional C corporation rather than an MLP. That means that it sports a much simpler tax treatment for investors. While long-term growth could be challenged by the firm's current scale, now's the time to lock in a huge cost yield on shares.

Reynolds American

Tobacco giant Reynolds American (RAI) is the second-biggest cigarette maker in the country, with premium brands such as Camel, Kool and Natural American Spirits. Reynolds is a typical "sin stock," sporting recession-resistant sales and a sticky customer base and generating the cash to pay for a hefty dividend yield. Right now, that yield adds up to 5.11%.

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Reynolds is a business in decline. Its customer base is dying a slow death (in a manner of speaking) as overall tobacco use declines in the U.S. Because the firm sold off its international rights to Japan Tobacco in 1999, high-growth markets in Southeast Asia and Latin America are off-limits to RAI. But if the U.S. tobacco industry is in a slow decline, "slow" is the operative word: It's contracting at less than 5% each year. With new initiatives like the Vuse brand of electronic cigarettes offering some hints at growth, Reynolds should maintain its cash-generation engine for the foreseeable future.

From a financial standpoint, RAI's balance sheet is in good shape, with $2.7 billion in cash offsetting a reasonable $6.2 billion debt load. Net margins consistently come in above the 20% mark, which means that management is able to hold on to a whole lot of each dollar that comes through the door. Expect a hike to RAI's 63-cent quarterly dividend payout.

Waste Management

Real income investors have a soft spot for garbage. After all, the waste management industry is historically known for paying out a large chunk of its income in the form of dividends. Enter standard bearer Waste Management (WM), a $21 billion trash company that boasts around 270 landfills and a massive fleet of trash collection vehicles across the U.S.

At current prices, WM is good for a 3.3% dividend yield.

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Like Reynolds' cigarette business, trash collection is recession resistant and sticky – customers can't just let garbage pile up at home if times get tough. Conventional trash disposal isn't WM's only operation. The firm also owns 22 Wheelabrator waste-to-energy plants that are designed to turn the waste that WM literally gets paid to collect into renewable energy that the firm gets paid for again.

The waste business is capital intense, but WM's management has done a good job of not over-leveraging the balance sheet. As the slow recovery helps to propel revenues back up to pre-2008 highs, expect dividends to get boosted. Right now, WM pays out a 36.5-cent quarterly check to shareholders, but that could change in early February with a new set of earnings.

PG&E

Like waste management, regulated utilities are another industry that historically goes hand-in-hand with big, consistent dividend payouts. So it shouldn't come as a surprise that regulated gas and electric utility PG&E (PCG) is making our list of potential dividend hikers too. Right now, PG&E is good for a 45.5-cent quarterly payout that adds up to a 4.59% yield.

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PG&E is the incumbent utility in Central and Northern California, with 5.1 electric and 4.3 million gas customers. The firm generates approximately 40% of its energy needs with a portfolio of 118 power plants spread across the state, but it no longer operates in the merchant generation business -- those unregulated assets got sold off almost 10 years ago when the firm over-levered its balance sheet and went bust. Now a more svelte PG&E operation is in place.

Regulated utilities benefit from very predictable revenues and cost structures. For PG&E, some of that regularity got shaken up thanks to legal problems and big investments in its gas pipelines. But while it's kept dividends flat for the last few years, 2014 could be the restart of the firm's growth curve. Stay tuned for earnings late next month.

Mattel

Toymaker Mattel (MAT) had a strong year in 2013, generating 32.23% gains in the last year with another nearly 4% tacked on for dividend payouts. And while the capital gains in shares have Mattel's payout pegged at 3.04% right now, this stock looks likely to boost its 36-cent dividend in the next quarter.

Mattel is the world's biggest toymaker, with a portfolio of brands that includes household names such as Barbie, Fisher-Price and Hot Wheels. The firm also has licenses to produce toys under popular franchises such as Batman, Disney and Dora the Explorer. That combination of in-house and licensed brands gives Mattel some serious selling power in the toy aisle, and that familiarity matters for parents shopping for their kids. With the biggest quarter of Mattel's year just wrapped up, earnings later this month could come with a material dividend boost.

From a financial standpoint, Mattel is in solid shape. The firm carries just $1.7 billion in debt on its balance sheet -- a number that's offset by a $406 million cash position. A history of returning value to shareholders in the form of dividends sets an important precedent for a dividend boost in 2014. And a rising tide of cash generation gives the firm the wherewithal to do it.

To see these dividend plays in action, check out the at Dividend Stocks for the Week portfolio on Stockpickr. 


-- Written by Jonas Elmerraji in Baltimore.


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

Jonas Elmerraji, CMT, is a senior market analyst at Agora Financial in Baltimore and a contributor to

TheStreet. Before that, he managed a portfolio of stocks for an investment advisory returned 15% in 2008. He has been featured in Forbes , Investor's Business Daily, and on CNBC.com. Jonas holds a degree in financial economics from UMBC and the Chartered Market Technician designation.

Follow Jonas on Twitter @JonasElmerraji