Stock Quotes in this Article: ACE, BLK, CB, DE, KMB, MOS, PSA

BALTIMORE (Stockpickr) -- Could dividends be in a bubble?

That’s the argument that’s been popping up in the headlines more and more in the past couple of months. The idea that dividends could be facing a bubble is a scary one. After all, these are the names that risk-conscious investors normally turn to avoid speculative forces, not to exploit them. But all of the dividend bubble talk warrants a quick look at what’s really going on in dividends right now.

Bubbles can happen anywhere. They’re all about insane valuations. So do dividends look like they’re entering bubble territory?

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Not quite. While dividend payers have been moving higher in 2012, so has everything else, buoyed by strong earnings season performance and already discounted values. More significant, corporate profits and cash reserves (two of the biggest factors behind dividend payouts) both currently sit at all-time highs.

If anything, dividend stocks are getting cheaper; in the last year, the S&P 500 has moved 4% higher -- but the S&P’s dividend yield has moved more than 16% higher. So in reality, the bubble argument looks pretty weak.

But dividend stocks don’t. Historically, their payouts account for the lion’s share of investors’ returns. That’s why we’re taking a closer look at seven dividend stocks raising their payouts right now.

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.

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 in the last week.

BlackRock

Things are looking up for BlackRock (BLK), not just because the firm’s shares have rallied more than 11.4% year-to-date. BlackRock weighs in as the largest asset manager in the world, thanks to more than $3.5 trillion in assets under management. Because that AUM level directly drives the firm’s earnings, a bullish turn for stocks translates directly into higher management fees on BLK’s top line.

BlackRock has undergone some transformations since the height of the recession. In 2009, it acquired Barclays Global Investors for approximately $13.5 billion, doubling the combined firm’s AUM and skewing its asset focus from what had traditionally been a fixed-income shop to a more equity-focused operation. That asset mix meant that investors stuck with BLK when treasuries were rallying, and they’re sticking with them still in this stock rally.

Better still, because institutional investors make up the majority of BLK’s clients, the firm isn’t as subject to retail investors’ cash concerns; that means that AUM is more likely to ride out rough spots.

All of those factors have translated into BlackRock’s dividend. Last Thursday, the firm announced a 9.09% increase in its quarterly payout, ratcheting it to $1.50 per share. That’s a 3.02% yield at current price levels. Investors looking for a solid core holding in the financial sector could do much worse than BlackRock.

BlackRock, one of Blue Ridge Capital's holdings, shows up on recent lists of Financial Stocks Bought and Sold by Hedge Funds and 6 Stocks With Double-Digit Gains and Big Dividends.

Deere

Heavy equipment maker Deere (DE) is another firm that’s benefitting from economic tailwinds right now. The company makes machines used in everything from construction to agriculture, a market that got hit hard in the recession as investments in capital-intense equipment dropped off. Now, though, the firm’s push toward international exposure is paying off at the same time domestic sales heat up again.

Behind Deere’s success is a major brand that’s recognized the world around. After all, how many other tractor makers sell their logo apparel to people who’ve never sat in a combine? That brand reputation has helped Deere capture around 50% of the North American agriculture market, and as agriculture and infrastructure spending perks up in emerging markets like India and China, Deere should be able to grow its share of those attractive markets as well.

While price point has historically been the stumbling block (Deere’s advanced ag machinery isn’t cheap), abundant credit and attractive cost-benefit tradeoffs are changing Deere’s emerging markets business for the better.

Management increased the firm’s dividend by 12.2% on Leap Day, to 46 cents per share. Even though Deere’s 1.97% dividend yield doesn’t exactly qualify the firm for core-holding status, income investors shouldn’t ignore this stock for its dividend alone. After all, investors who bought shares back in 2010 are looking at a cost yield of 3.7% right now. As long as dividend hikes keep coming, new investors should be targeting a similar outcome.

Deere shows up on a list of Industrial Stocks Bought and Sold by Hedge Funds in the fourth quarter, and it was highlighted in "7 Stocks Set to Rise Above $100 in 2012."

Kimberly-Clark

Kimberly-Clark (KMB) is one of the big names in the consumer health and hygiene market, built on a portfolio of household-name brands that includes Kleenex, Scott towels, Huggies and Kotex. Like most other major consumer non-cyclicals, Kimberly-Clark benefits from huge exposure abroad that accounts for nearly half of sales. Emerging market consumption of the firm’s products -- particularly convenience offerings like Huggies -- presents a big opportunity for KMB to grow its top line in the next few years.

A rebounding economy has taken pressure off of KMB on the private-label front; with offerings like Kleenex much more readily comparable with store brand bargain tissues, the firm saw its top line get knocked by trading down in the grocery aisles during the recession. Inflation is a big concern for KMB right now. With input costs rising at a quick clip (especially in this commodity market), the firm will need to be able to pass those costs onto consumers quickly if it wants to avoid margin squeeze.

But that margin squeeze hasn’t hampered Kimberly-Clark’s dividend payout. On Tuesday, the firm announced a 5.7% dividend increase that brings its quarterly payout to 74 cents per share. That’s an impressive 4.1% yield at current price levels. All things considered KMB gets core-holding status for income investors at those levels.

Kimberly-Clark shows up on a recent list of 10 Stocks That Will Let You Retire.

Mosaic

2012 is offering up a good run for shareholders of $25 billion fertilizer firm Mosaic (MOS). So far this year, the firm has rallied more than 15% on the heels of a share repurchase and a general swing in market sentiment.

Mosaic also gets the distinction of being the biggest dividend increaser of the last week; the firm increased its quarterly payout by 150% to 12 cents per share. Before you get too excited about the increase, though, that’s a 0.34% yield.

Mosaic is a major player in the fertilizer business, generating around 12% of global potash and phosphate production. The same agricultural tailwinds that are benefitting Deere right now are also benefitting Mosaic -- prices for soft commodities have been climbing for a while now, making farmers much less beholden to their input costs. That gives Mosaic a whole lot more pricing power in this economy.

Low cost mines and vertical integration provide deep, double-digit margins for MOS, something that investors shouldn’t ignore as soft commodity prices only move higher. Mosaic is a strong company; that said, the firm’s lack of a meaningful dividend means that it’s not core-holding material.

Mosaic, one of John Paulson's stocks, shows up on lists of 10 Stocks in the Red-Hot Materials Sector and 10 Top Morningstar M&A Stock Picks for 2012.

ACE

Commercial property-casualty insurance firm ACE (ACE) is another name that boosted its dividend payout last week. Last Thursday, the firm announced a 4.26% increase that makes 2012 the firm’s 18th consecutive year of dividend raises for shareholders. The move puts ACE’s payout at a 2.6% yield.

ACE built its business on providing major corporations with insurance against catastrophic losses. Around 90% of ACE’s revenues come from that commercial property-casualty insurance line, a business with high barriers to entry for the otherwise commoditized insurance industry. Because few insurers can offer the scale that ACE offers, the company is able to underwrite profitable policies with reduced competition.

But while the catastrophic insurance business can be extremely profitable when times are good, it can be treacherous when risks aren’t adequately covered. That’s an area where ACE has left much to be desired lately. Not only did the firm carry a riskier investment portfolio during the recession, but it’s also dealing with more insurance losses than its models counted on in the last few years.

A stabilizing insurance market should bode well for ACE in the coming years and months, but for now the firm’s increased dividend doesn’t justify exposure to this name.

ACE, one of Citadel Advisors' holdings, shows up on lists of 5 Insurance Stocks for 2012 and JPMorgan's 24 Stocks That Are More Attractive Than Apple.

Public Storage

Aptly-named self-storage REIT Public Storage (PSA) owns more than 140 million square feet of storage units spread throughout 38 U.S. states and parts of Western Europe. That large geographic footprint translates into an equally large dividend payout. Last week, the firm announced a 15.8% payout increase, bringing its dividend to an annual 3.28% yield.

It’s important to think of REITs like PSA as income instruments rather than ways to get exposure to the real estate market. While PSA’s balance sheet ultimately comes down to commercial real estate, the firm’s high occupancy rate and obligation to pass through the vast majority of income as dividends make the firm a cash-generation machine.

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To be sure, PSA’s dividend engine isn’t quite as bulletproof as some rival REITs. The firm has exposure to consumers and lacks the ironclad leases that commercial REITs enjoy.

Even so, PSA has clearly been able to perform at a high level in the last few years. As demand for storage units remains high, so too should demand for shares of PSA.

Chubb

Chubb (CB) is one of the largest property-casualty insurers in the U.S., with a focus on commercial catastrophic coverage (much like ACE), but exposure to personal and specialty lines as well. Chubb has proven itself skilled at pricing risks, and willing to walk away from business if pricing doesn’t make sense. While that’s cost the company in years’ past, it’s resulted in a stronger insurance book.

Ultimately, that financial strength is an additional selling point for large-scale clients who need confidence in their insurers.

One of the more interesting parts of Chubb’s business is its willingness to move into specialty insurance products. That niche business means that the firm doesn’t fight the commoditized pricing present in most insurance products, and it’s able to sell scale that many other niche insurers can’t touch.

Last week, Chubb increased its dividend by 5.13%. The move brings the firm’s quarterly payout to 41 cents per share, a 2.42% yield at current price levels. While Chubb isn’t the highest-yielding stock in the insurance business, its defensible positioning makes it one of the more interesting ones. Income investors looking for a second or third insurance holding should take a closer look at CB.

As of the most recently reported quarter, Chubb is one of

>>Moore Capital's top holdings.

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

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-- 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.