Stock Quotes in this Article: AFL, AMTD, APH, CVX, DGX, RAI, SPG

  BALTIMORE (Stockpickr) -- The trickle of dividend increases this earnings season is turning into an outright stream: all told, almost 60 firms announced dividend hikes in the last week. That’s an important shift right now for investors.

That’s because dividends historically dictate a lot about a company’s overall gains. With the S&P 500 now well into positive territory for 2011 thanks to yesterday’s mammoth gains, it’d be easy for investors to mentally eschew dividends in favor of capital gains. But that’s a big mistake. You see, dividends and capital gains aren’t mutually exclusive -- in fact, they’re two sides of the same coin.

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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 data compiled by Ned Davis Research. The numbers are even more compelling when looking at companies that consistently increase their payouts.

    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 seven of the stocks that hiked payouts last week.

    Chevron

    Oil supermajor Chevron (CVX) is having a strong year in 2011 -- or rather, a strong month. Shares of the firm have rallied nearly 20% this year, of which around 17% of those gains have come from the rally that stocks have enjoyed this past month. Now the company is boosting returns by ratcheting up its dividend payout. Chevron increased its dividend by 3.85% this week; the firm now yields 2.86%.

    Chevron produces almost 3 million barrels of oil equivalent each day, a metric that’s impressive enough to make the firm the second-largest oil company in the world. For growth, Chevron has increased its focus on deep water exploration, a comparatively riskier way to pull oil out of the ground -- but one of the most viable growth avenues for a firm that doesn’t want to dilute its returns on capital.

    >>5 Oil & Gas Stocks to Take Advantage Of

    Like peer Exxon Mobil (XOM), Chevron has been making big investments in natural gas in recent years, building out a business whose commodity prices aren’t tied in lockstep with the price of oil. The oil business is particularly capital intense, but Chevron is in very good financial shape. Compared with peers, debt is low, and an $18 billion cash cushion and significant cash flow generation abilities should keep the firm from needing to turn to the capital markets for new funding.

    For investors without commodity exposure in their income portfolios, Chevron makes for a good core holding.

    Chevron shows up on recent lists of 10 Dow Stocks With Lowest P/E Ratios 9 Stocks With Low Volatility, High Dividends.

    Simon Property Group

    When it comes to dividends, REITs such as Simon Property Group (SPG) are one of the best bets out there. These types of companies are essentially dividend machines; they exist solely for the purpose of generating cash to pay out to shareholders. SPG is living up to that directive right now -- the firm hiked its dividend by 12.5% this week, bringing it to a 2.83% yield at current share prices.

    Don’t think that Simon Property Group -- or other REITs like it -- are a direct way to invest in real estate. While massive real estate positions on REITs’ balance sheets do provide some exposure to real estate assets, it’s marginal at best. That’s because long-term triple-net lease agreements dramatically insulate SPG from the ebb and flow of property prices. Simon’s positioning as a retail landlord means that lease renewal rates are high, and the firm earns an industry-standard “bonus” based on tenant sales.

    From a balance sheet perspective, SPG is in solid shape. The firm carries considerable long-term debt, but it’s more than offset by strong cash flows. Better yet, the book value of SPG’s assets is significantly less than their replacement value. While there are other REITs that pay out larger yields right now, SPG’s retail exposure should make it more attractive longer-term.

    SPG was featured recently in "5 Retail Stocks for Your Shopping Bag" and earlier this month in "5 Rocket Stocks to Buy." It's one of the top holdings of Ken Heebner's Capital Growth Management."

    Reynolds American

    Tobacco giant Reynolds American (RAI) is the second-largest cigarette firm in the U.S., with a brand portfolio that includes Camel, Kool and Pall Mall. Sin stocks, particularly tobacco companies, have traditionally been significant dividend payers -- and Reynolds is no exception. After the 5.6% dividend increase management announced last week, Reynolds pays out a 56-cent per-share dividend. That’s a generous 5.8% yield at current price levels.

    Reynolds’ brand entrenchment in the U.S. makes it an attractive name, even if the domestic tobacco business has been in decline for the last few years. Anti-smoking campaigns have largely been effective, and cigarette volume has been contracting consistently as a result. That, combined with RAI’s older demographic, creates challenges for the company.

    So does Reynolds’ sale of international brand rights; emerging markets are the most appealing growth opportunity for tobacco companies right now -- and barring the development of new brands, it’s an opportunity that Reynolds traded for a cash payment. Instead, smokeless tobacco is an adequate growth business for RAI.

    Longer-term investors should look to more internationally diversified names for growth; that said, RAI is a good option for investors looking to temporarily shift to more defensive income names.

    Reynolds, one of TheStreet Ratings' top-rated tobacco stocks, is also one of the highest-yielding tobacco stocks.

    Aflac

    Aflac (AFL) is a $22 billion insurance firm that offers supplemental and life insurance to consumers in the U.S. and Japan. The firm distributes its insurance products direct to consumers’ workplaces -- it’s a unique model that’s provided Aflac with enviable growth in what’s typically a fairly static industry. Aflac’s model has also helped to fuel a 2.6% dividend yield. Management increased the payout by 10% this week.

    The struggling economy has proven challenging for Aflac. Because the majority of the firm’s insurance products are supplemental, cash-strapped consumers are a whole lot less sticky than customers of less discretionary insurers. To combat that, Aflac has increased its focus on the Japanese market, a demographic that already made up Aflac’s most attractive business. The company’s Japanese customers are historically stickier than U.S. consumers, and high demand for supplemental insurance products actually creates growth opportunities there.

    >>20 Highest-Yielding Insurance Stocks

    Japan has swelled to around three quarters of Aflac’s premium revenues – the firm’s early entrance into the Japanese market means that it’s got comparative advantages in the typically commoditized insurance market. That’s a big advantage for this industry.

    Aflac shows up on a recent list of Large-Cap Stocks With Room to Grow Dividends.

    TD Ameritrade

    Brokerage firm TD Ameritrade (AMTD) has been enjoying quick growth during the last several years, buoyed by a number of substantive acquisition that transformed the firm from a small discount broker to a large, diversified financial services firm. Almost half of TD Ameritrade’s revenues come from fee and interest-based sources, limiting the firm’s reliance on commission income -- an important change right now.

    While low rates have been a major hurdle for AMTD’s earnings, the firm’s valuation was reduced so dramatically in the height of the financial crisis that shares remain cheap at this point. Financially, TD Ameritrade is one of the better-situated brokerage names, with a zeroed-out net debt position and plenty of balance sheet liquidity.

    This week, management announced a 20% dividend increase that brings the firm’s quarterly payout to 6 cents per share. While that 1.4% dividend yield hardly qualifies TD Ameritrade as a core income holding, management’s decision to share more of its earnings with shareholders sets a good precedent.

    As of the most recently reported period, TD Ameritrade was one of the top holdings of John Griffin's Blue Ridge Capital.

    Quest Diagnostics

    If you’ve ever gone for a blood or drug test, there’s a good chance that you’ve been to one of Quest Diagnostics’ (DGX) 2,000 locations. The firm is one of the largest diagnostic testing companies in the world, with a market capitalization of nearly $9 billion.

    Quest’s business is non-discretionary, and margins are thick. In the most recent quarter, net margins tipped the scales approaching the low double-digit range, and as the breadth of Quest’s services increases, investors should expect those margins to increase.

    That’s because the firm has been expanding its offerings to include more complex testing products (such as genetic testing and pathology testing) that have high barriers to entry for physicians’ practices to replicate. As a result, testing margins on those products tend to be more profitable for Quest.

    On Tuesday, Quest announced a 70% dividend increase that brings its total payout to 1.2%.

    Quest shows up in the portfolio of Daniel Loeb's Third Point.

    Amphenol

    Last, but certainly not least, is electrical, electronic and fiber optic connector manufacturer Amphenol (APH). With a 600% increase in its dividend, Amphenol’s payout hike was the biggest of last week. While that increase is impressive, it’s more the result of the fact that APH’s dividend before the hike was so low -- even now, the firm’s dividend yield is 0.12%.

    But that low yield doesn’t change the attractiveness of Amphenol’s business. The firm is one of the largest connector makers in the world, a niche that offers relatively low manufacturing costs and strong margins. Historically, the firm has plowed the resulting earnings into fast-paced growth rates -- but the decision to increase its dividend is a positive move for shareholder returns.

    While connectors are an attractive business, they’re also very cyclical. Until a more meaningful economic recovery shows its head, I’d suggest sitting on the sidelines of this stock.

    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.