BALTIMORE (Stockpickr) -- At the start of February, Mr. Market flipped a switch. Suddenly, the hottest momentum names of 2013 weren't working so well in 2014. In their place, the best-performing names became the staid, boring blue chips.

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In those last two months, the momentum-rich Nasdaq Composite has struggled to climb 1.26% higher, while the less exciting Dow Jones Industrial Average has actually stuffed gains of almost 4% in investors' pockets over the same period. Why the outperformance in outsized stocks?

It has a lot to do with the fat dividend payouts that you can find in the Dow.

Over the last three and a half decades, dividends stocks have outperformed the rest of the S&P 500 by 2.5% annually, and they outperformed nonpayers by nearly 8% every year, according to data compiled by Ned Davis Research. The numbers are even more compelling when looking at companies that consistently increase their payouts.

To take advantage of that trend today, we're focusing on dividends 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.

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For our purposes, that "crystal ball" is composed of a few factors: namely a solid balance sheet, 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 to shareholders.

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

Exxon Mobil

First up is oil and gas supermajor Exxon Mobil (XOM). Exxon is the biggest energy company in the world, with an integrated business that spans retail, refining, transportation, and exploration and production. It's also the firm that's shared the most cash with investors in the past couple of years from a shareholder yield standpoint. Its 2.58% dividend yield is a big contributor to that -- and at 63 cents per share, Exxon Mobil looks ready to boost its payout once again.

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Exxon's business is worth more than the sum of its parts, so while many other energy stocks are selling off their downstream assets to unlock value for shareholders, XOM has been holding onto its refining and retail businesses to keep higher profits on an absolute basis. Big exposure to natural gas has been paying off in 2014, as nat gas prices climb skyward. With crude oil still on the high end of its historic range, XOM is cleaning up right now.

Scale provides some big advantages for Exxon Mobile. The firm has huge resources (not just the 25.2 billion barrels of oil equivalent it owns in the ground), and it's historically been stellar at allocating that capital where it's treated best. Higher commodity prices should help boost Exxon's profits near-term, providing more dry powder for dividend payouts following four straight quarters of flat dividend checks.

United Parcel Service

There's one airline stock that hasn't gotten to participate in the broad-based airline rally of the last six months: United Parcel Service (UPS). That's right, UPS is an airline stock -- it's the third-largest cargo airline on the planet by fleet size, with 237 aircraft flying packages day and night. And the exact same tailwinds that are propelling conventional passenger airlines in this economy are also boosting profits at UPS' air and ground package businesses.

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UPS is the planet's largest package delivery company, with more than 100,000 vehicles that deliver 16.2 million shipments per day to homes and businesses around the world. That huge infrastructure makes barriers to entry unfathomable for most potential rivals, giving UPS a big, well-protected duopoly with FedEx (FDX). Logistics management is becoming an increasingly important side business for UPS, with around 15% of revenue coming from high-margin freight forwarding and logistics planning.

Right now, UPS pays out a 67-cent dividend that adds up to a 2.75% yield. Even though the firm just recently upped that payout, a well-capitalized balance sheet with nearly $6 billion in cash and investments, and solid profitability, should clear the way for another hike this year.

Keep an eye on first quarter earnings on April 24.

Costco Wholesale

Who would have thought that a retail chain could thrive by charging customers just to walk through the door? But that's exactly the business strategy that membership warehouse Costco Wholesale (COST) has used to become the third-largest retailer in the U.S. Costco's 451 worldwide clubs are famous for selling high-quality items in large bulk quantities, and its ability to operate at paper-thin margins is what sets it apart from the competition.

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Unlike most retailers, Costco doesn't want street traffic meandering into its stores and buying a 100-pack of chewing gum or a gallon of shampoo. Instead, it operates a membership model, which means that only the firm's 70 million members can shop in its stores. That membership restriction provides Costco with a recurring revenue stream, and (more significantly), a very loyal and sticky customer base. Because consumers are less likely to carry memberships from competing wholesale clubs, Costco's existing base of higher-spending customers gives the firm a shallow economic moat versus its peers.

In fact, Costco earns most of its profits through membership dues, a fact that gives the firm the ability to sell products very close to cost. And it's been one of the few major U.S. retail chains that's been able to replicate its success abroad. Right now, Costco pays out a 31-cent quarterly dividend for a 1.11% annual yield. With a fortress balance sheet, there's a lot of dry powder for COST to return more cash to shareholders in 2014.

Capital One Financial

$44 billion financial services powerhouse Capital One Financial (COF) keeps growing its brand in this environment. The credit card issuer expanded into conventional banking in the wake of the Great Recession, buying troubled banks at bargain-bin prices, and walking away with huge low-cost deposit bases for its trouble. That transition means that Capital One is able to borrow money on the cheap, and lend it at substantially higher rates today.

With interest rates still hovering around historic lows, the spreads that this firm is able to earn right now are impressive. That's why 70% of COF's profits come from consumer lending. And with the Fed making overtures at upward mobility in interest rates, those spreads could be on the way up too. Capital One's innovative advertising and big marketing budget has made it one of the most well known names in credit cards and auto loans. That name recognition should help the firm enjoy outsized growth as consumer spending continues to heat up this year.

Despite impressive growth rates and net profit margins that consistently fall in the teens, COF trades for just 10.3 times earnings. That's a fraction of the multiple that bigger, slower banks are claiming in this market. That cheap price tag, coupled with a thumbs-up from the Fed's latest balance sheet stress tests should fuel a dividend hike at COF. Right now, the firm pays out a 30-cent dividend that adds up to a 1.58% yield.


Candy giant Hershey (HSY) is having a strong year so far in 2014. The $23 billion food maker has jumped more than 6% since the calendar flipped to January, vs. a modest 0.5% bump in the S&P 500. And with a dividend payout that weighs in at 48.5 cents, Hershey looks like a prime candidate for a payout hike in the near-term.

Hershey is the largest candy company in the U.S., with a whopping 43% share of the domestic chocolate business. The firm's portfolio of huge brands include names like Reese's, Kit Kat and Twizzlers in addition to its popular namesake products. In total, the firm boasts more than 80 brands sold in 70 countries. Most of HSY's sales are generated stateside, however, with just 15% of revenue coming from other countries. That means that even relatively small market share boosts abroad can translate into material growth for Hershey in the years ahead.

That growth has palpable for Hershey in the last few years, with revenues climbing 27% in the last three years alone. Profits have growth twice as fast. Dividends growth hasn't grown quite at that breakneck pace, however, and that leaves plenty of room in HSY's payout ratio for a boost. For now, the firm's dividend adds up to a 1.88% yield.

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 Jonas holds a degree in financial economics from UMBC and the Chartered Market Technician designation.

Follow Jonas on Twitter @JonasElmerraji