Stock Quotes in this Article: AGU, AXP, CVS, DFS, O, SEIC, UDR, WMT

BALTIMORE (Stockpickr) -- If 2011 taught investors anything, it’s the importance of dividends.

While the S&P 500 has swung wildly from peak to trough this year -- set to close less than a percentage point away from breakeven -- dividends payouts have been the source of many shareholders’ only meaningful returns in 2011. And the stage has been set all year for that to be the case: record cash in corporate coffers and multi-year high yields among payers both contributed to the effectiveness of a dividend strategy this year.

And looking longer-term, 2011 wasn’t an outlier…

Over the last 36 years, 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, according to data compiled by Ned Davis Research. The numbers are even more compelling when looking at companies that consistently increase their payouts.

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    That’s why we pay close attention to the firms that are shoveling more corporate cash to shareholders each week. With that, here’s a look at six of the stocks that hiked payouts in the last couple of weeks.

    CVS Caremark

    Even though stocks have been lackluster in 2011, it’s been a good year for shareholders of CVS Caremark (CVS). The $53 billion pharmacy chain’s stock has rallied more than 17% year-to-date.

    While CVS is best known to consumers as a retail pharmacy, the company dramatically changed its business when it acquired Caremark in 2007, adding one of the largest pharmacy benefit managers in the world to the firm’s list of accomplishments. While the PBM business typically carries a dangerously narrow moat, the combination of a PBM with a successful retail pharmacy increases the competitive advantage that Caremark is able to claim.

    A push toward new initiatives (like in-store clinics) is keeping CVS in an enviable position, and helping to expand the firm’s margins above those of a traditional retailer. This month, the company announced a 30% dividend increase, bringing its quarterly payout to 16.25 cents per share -- a 1.6% yield at current levels.

    SEI Investments Company

    On the other side of the spectrum is SEI Investments Company (SEIC), a mid-cap asset manager and back-office outsourcer that helps traditional portfolio managers cut the costs of managing clients’ assets. SEIC hasn’t been immune to the selling in the financial sector this year; shares are down more than 27% since the start of 2011.

    Because SEIC provides middle- and back-office fund management functions (like accounting, record keeping, and compliance), the firm’s clients tend to be stickier mid-sized asset managers and financial advisors who just are capable of handling those logistics themselves. Regardless of those benefits, industry headwinds have been a challenge for the firm -- especially considering that SEIC’s profitability is effectively tied to its clients’ assets under management. A volatile investment scene has meant rough revenue performance since 2008.

    The firm has been working to build its own asset management business in recent years, taking the onus off of clients’ abilities to draw investors. While those fee-based revenues are welcome, the firm will need to be careful not to grow its own AUM at the expense of its bread-and-butter business. Earlier this month, management increased SEIC’s semi-annual dividend by 25% to 15 cents.

    Agrium

    Agrium (AGU) is one of the biggest agricultural retailers in North America, with more than 1,000 locations spread throughout the U.S. and Canada. The firm sells chemicals, seeds, and fertilizers directly to farmers, wholesalers, and gardeners. One of the most attractive attributes of Agrium is the fact that the firm isn’t merely a seller -- it’s also the third-largest producer of potash in North America, a factor that should bode well for Agrium’s margins as fertilizer prices rise.

    From a macro standpoint there’s reason to be bullish on the agriculture business. As growing populations and declining farmland continue to be major themes worldwide, demand for efficiency-improving products (like fertilizers) should continue to strengthen. At the same time, Agrium’s push to other regions should help to spawn growth in the next few years.

    Even though the vast majority of Agrium’s revenues are earned in U.S. dollars, the firm’s exposure to commodity prices should help to keep shareholders’ stakes diversified away from the greenback. This month, management more than tripled its dividend payout, hiking it by 309% to 22.5 cents per share.

    UDR

    UDR (UDR) is a residential housing REIT that owns more than 40,000 apartment homes spread throughout the U.S. That’s a business that’s been benefitting from the post-2008 shift in real estate markets, as lending requirements tighten and gun-shy consumers become more apt to continue renting rather than take on the risks of owning a property.

    Because UDR is a landlord REIT, it’s more exposed to market forces than most of its commercial peers, which lease their portfolio properties through long-term triple-net leases. UDR has quicker tenant turnaround -- and that means that a major decline in the rental market would be very detrimental to the firm’s ability to pay out cash to shareholders.

    Those risks aside, UDR is one of the best residential REITs, paying out a 3.39% dividend yield thanks to this month’s 7.5% hike in the firm’s payout. While the dynamics that currently favor renting are likely to change in the long term, they’re equally likely to remain fixed shorter term. That means investors seeking income should give this trust a second look.

    Realty Income

    Another REIT alternative is Realty Income (O), a commercial REIT that owns 2,496 properties, making up more than 21.2 million square feet of leasable space. Realty Income is a more prototypical real estate investment trust because of its long-term triple-net lease structure. What that means is that tenants are responsible for costs like property taxes, insurance and maintenances, leaving Realty Income to collect a pre-set inflation-adjusted leasing fee.

    That arrangement is especially compelling given the fact that Realty Income’s average lease is longer than 20 years. Even if there are major shakeups in the real estate market, the firm is able to collect consistent and predictable income from its property portfolio.

    And because the firm is a REIT, and obligated to pay the vast majority of its earnings out directly to shareholders, that means that Realty Income is an excellent option for income investors. While the firm’s 0.2% dividend increase this month doesn’t sound like much, it’s adding onto what’s now a 4.95% yield. Monthly payouts add to this stock’s attractiveness as a dividend holding.

    Discover Financial Services

    Sometimes, playing the number-four role isn’t a bad gig. Just ask Discover Financial Services (DFS), the fourth-largest payment card network in the country -- and the second-largest closed-loop network after American Express (AXP). Unlike higher-profile peers, Discover issues its own Discover and Diner’s Club cards to consumers (as well as licensing its network to other issuers). While that business adds credit risk to DFS’ balance sheet, it also adds to the firm’s margins.

    Discover’s closed-loop status provides the firm with considerable cost control over its network. As a result, Discover enjoys a special relationship with Wal-Mart (WMT), whose Sam’s Club stores issue their own Discover-branded cards. Because the firm is still relatively small from a valuation standpoint, it could make an attractive acquisition target for a larger financial institution that’s looking to gain advantages in the payment network space. While that’s speculative at best, a high replacement value for DFS’ brand makes it more attractive from a shareholder standpoint.

    This month, Discover hiked its dividend to 10 cents per quarter, a 67% increase. That move ratchets the firm’s yield to 1.66%.

    To see these dividend plays in action, 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.

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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.