Stock Quotes in this Article: ABC, BAX, HD, JCI, MRK, SYY, HFC

 BALTIMORE (Stockpickr) -- Dividend payouts are starting to taper off this week, as earnings season starts to slow. Not counting microcap names, a total of 26 firms increased their dividend payouts to shareholders since last Thursday -- down from 35 in the previous week.

But while the quantity of dividend hikes is slowing, the quality isn’t; some significant names are posting meaningful payout increases right now. And with the S&P 500 down 3.78% since Monday, it makes sense to pay attention to dividends as an alternative source of investor returns.

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    Part of the reason for focusing on dividend payers is the fact that, historically, when you focus on income, the capital gains take care of themselves. 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 in the last week.

    Merck

    The biggest firm to hike dividends last week was Merck (MRK), the $107 billion pharmaceutical firm. Merck, one of the highest-yielding drug stocks, has been a strong performer in 2011 despite a share price that’s essentially flat on the year. That makes its dividend payout all the more important -- after all, it’s directly connected to Merck’s fundamental performance, not market prices. Last Thursday, management announced a 10.53% increase in the company’s payout, ratcheting its yield to a hefty 4.82% at current price levels.

    There have been some major consolidations within the big pharma business in the last few years, and Merck hasn’t been left out. The firm acquired Schering-Plough in 2009, dramatically expanding its late-stage pipeline and growing its consumer products exposure. Like most of its major peers, Merck has the black clouds of patent losses lingering over its future.

    While the Schering acquisition dramatically reduces the impact of losing blockbuster names like Singulair next year, exchanging known success for the next unknown drug in the pipeline (however promising) still makes investors cringe a bit -- and rightfully so.

    Despite the balance sheet leverage that Merck had to take on to buy Schering, the combined firm is still in sound financial shape right now, and investors should expect massive cash flows this year. As a result, Merck’s dividend looks solid for the foreseeable future.

    With a yield tipping 5% and reduced patent drop-off concerns, this firm makes an attractive core holding for income investors right now.

    Merck, one of the top holdings at Kahn Brothers as of the most recently reported period, shows up on a list of 10 Dow Stocks With the Lowest P/E Ratios.

    Home Depot

    As the world’s largest home improvement retailer, Home Depot (HD) has seen the best and the worst of U.S. spending trends. At the height of the housing boom, Home Depot experienced breakneck growth as consumers and contractors turned to the chain’s nearly 2,300 warehouse stores to renovate the upstairs bathroom or build that new addition.

    When the floor fell out of the housing market, however, Home Depot succumbed to its own growth aspirations with an overleveraged balance sheet and too many stores.

    But that’s not where the story ends. In the years since, Home Depot has done an about-face, selling off its contractor supply business and restructuring its balance sheet to stay in the game. The firm also took a page from top competitor Lowe's (LOW), improving its supply chain and operational abilities to get its margins competitive again.

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    Ultimately, the sales drop expected from the housing crash never happened in earnest -- instead, consumers have been opting to build home equity through DIY improvements in recent years, halting the decline in HD’s sales in its latest fiscal year.

    This week, Home Depot, one of the highest-yielding retail stocks, announced a 16% increase in its dividend payout, now offering investors a quarterly 29 cents per share; that’s a 3.08% yield at current levels. With massive scale and margin improvement continuing at HD, this stock is another core income name.

    Baxter International

    Medical supply maker Baxter International (BAX) is a leader in the injectable therapies market, manufacturing everything from IV bags and solutions to dialysis equipment. The company also has a strong BioScience division that develops treatments for a number of disorders -- it’s BioScience where Baxter has the biggest growth potential right now.

    Because Baxter focuses on highly profitable niche products that treat specialized disorders, it’s able to generate higher returns than more generalized pharmaceutical peers. While competition in pharma is fierce, Baxter’s continued development of BioScience treatments should continue to boost both its top and bottom line.

    At the same time, medical devices and medical supplies offer a more stable revenue stream right now. That combination of a more speculative growth business and a staid recurring revenue generator makes Baxter all the more attractive to income investors.

    Speaking of income, Baxter, one of the highest-yielding health services stocks, announced an 8.07% dividend increase earlier this week, bringing its quarterly payout to 34 cents per share, a 2.61% yield at current prices.

    A solid financial position with limited net debt and excellent cash flow generation capabilities should keep the payouts flowing to investors for the foreseeable future.

    Baxter, one of John Paulson's top holdings, shows up on a list of 9 Stocks With Low Volatility, High Dividends.

    HollyFrontier

    Petroleum refiner and pipeline company HollyFrontier (HFC) has combined refinery capacity of more than 440,000 barrels per day at its five facilities. While that makes the firm a small player in an industry where supermajors dominate through integrated exploration and refining capabilities, HollyFrontier is still able to generate attractive net margins through prescient acquisitions and part ownership of an attractive pipeline business.

    Because much of HollyFrontier’s refining capacity is located away from the coastline, its facilities enjoy higher margins than the strategically located refineries by ports owned by supermajors. As long as the supply-demand equation remains tipped toward Gulf Coast refineries, HollyFrontier should continue to enjoy strong profitability.

    This week, the firm announced a 14.29% increase in its payout that brings its total yield to 1.67%. While hardly a core holding at that payout level, HollyFrontier is still an interesting way to get exposure to the oil business right now.

    Holly Frontier, one of the top stocks at David Tepper's Appaloosa Management and Steven Cohen's SAC Capital, shows up on a list of Hedge Funds' Best Picks for 2012.

    Johnson Controls

    Johnson Controls (JCI) is another firm that announced a dividend hike this week. The firm increased its quarterly dividend by 12.5%, bringing it to 18 cents per share. That’s a 2.42% yield at current levels.

    In the past, excessive exposure to the automotive business has been a negative for Johnson Controls. While the company has a $12.8 billion HVAC business, more than $20 billion of its sales come from manufacturing interior components and batteries for automakers.

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    In 2011, with car sales climbing, that exposure to cards is actually a positive for a change. Still its income statement diversification is a welcome change, particularly as volatility (both up and down) continues to be the name of the game for carmakers.

    Johnson Controls, one of the highest-yielding automotive stocks, has a reasonably healthy balance sheet. While liquidity is a bit lacking, the company does have access to an untapped credit facility that ensures it’ll be able to draw cash for operational needs.

    While its dividend payout is attractive, there are better ways to get higher yields and better ways to get automaker exposure right now.

    Sysco

    If you’ve eaten at a restaurant lately, there’s a fairly good chance you’ve had food from Sysco (SYY). As the country’s biggest food service distributor, the firm provides 400,000 restaurants, hotels, and institutional dining facilities with everything from napkins to crabcakes (that’s right, the famed crabcake at your favorite small restaurant might not be made in-house).

    Sysco’s scale is a big factor in its success. Because the firm’s distribution network spans the entire U.S., Sysco is able to provide consistent and convenient products to its customers and maintain a cost edge over would-be competitors. Inflation has been an issue for Sysco, particularly in meat prices, where futures have been experiencing a bull market (an unavoidable pun). If Sysco can’t pass those increased input costs onto its consumers, it’ll see margins get squeezed very quickly.

    At the same time, the relatively recent focus on locally sourced products presents another challenge for Sysco. As diners start demanding more gastronomical innovation from restaurants, Sysco could see itself supplying fewer high margin products. Truth be told, both of those concerns are still fairly minor for the company at this point -- but they could morph into larger issues. Sysco will need to stay a step ahead.

    This week, Sysco announced a 3.85% increase in its dividend payout. While the increase is small, it contributes to a more attractive 3.95% yield right now. This stock makes a good diversifier for investors with “the regular dividend suspects” in their income portfolios.

    Sysco is part of the High-Yield Dividend Champion Portfolio for November.

    AmerisourceBergen

    AmerisourceBergen (ABC), one of TheStreet Ratings' top-rated supplier and distributor stocks, is one of the biggest pharmaceutical distributors in the U.S., a business that involves acting as a middleman between pharmaceutical manufacturers and healthcare providers. It’s a business that provides slim margins -- after all, if profitability grew too attractive pharmaceutical and healthcare firms would likely replicate ABC’s business internally.

    As it stands now, pharmaceutical distribution is a capital-intense business to enter with a slow payback -- and that’s just how firms like AmerisourceBergen like it.

    Last week, AmerisourceBergen announced a 13.04% dividend increase, bringing its yield to 1.39%. While there are some benefits to owning a name like AmerisourceBergen (namely exposure to pharmaceutical volumes with no patent concerns), low margins are a big concern -- especially as potential shifts in healthcare reform continues to be a black cloud for the industry. While a net cash position in AmerisourceBergen’s balance sheet helps with some of those concerns, the risk-reward tradeoff just doesn’t seem worth it.

    If you’re looking for pharma exposure, look to the high yields in drugmakers. A basket of big pharma firms decreases the risk from patent expiry on your portfolio.

    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.