Stock Quotes in this Article: ARG, FDO, MHP

BALTIMORE (Stockpickr) -- Even as volatility continues to decline over the long term, earnings season and economic news abroad are helping to spike the CBOE S&P 500 Volatility index -- better known as the VIX -- in the shorter term. But investors need not let added flux impact their portfolios.

What’s the best way to combat the market’s ebb and flow? Turn to dividends.

In the early to mid 1900s, dividend stocks were the ultimate choice for investors. After all, they paid regular incomes that were based purely on fundamentals, not on market swings. That meant that, in many cases, dividend stocks could continue paying out cash to investors in bear markets. But dividend stocks lost much of their cachet as growth stocks -- such as tech firms, which have historically opted to use their cash to fuel further growth instead of pay dividends to owners -- gave significant capital gains to investors willing to part with quarterly cash payments.

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    Now, though, dividend stocks are coming back in style.

    And there’s compelling historical evidence that suggests dividends and capital gains aren’t mutually exclusive. 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 a study from NDR.

    Right now, companies that are willing to part with cash in arguably tough times are worth a second look. And while companies that pay dividends are great, the companies that increase those dividend payouts over time are even better.

    Each week, we take a look at companies that are actively increasing their dividend payouts to shareholders. Without further ado, here’s a look at this week’s dividend stocks.

    Aptly named Airgas (ARG) is the nation’s leading supplier of industrial, medical and specialty gasses -- a market position that the Pennylvania-based firm has built up over the course of the last 29 years. That size advantage has helped the company’s investors capture 30% gains in the last 12 months, dividend notwithstanding. Last week, management announced a 16% dividend increase, bringing its quarterly payouts to 29 cents per share.

    Airgas is also a major distributor of safety products and industrial chemicals, businesses that provide attractive cross-selling opportunities with the company’s flush customer Rolodex. Although the packaged gas business is fragmented, with low barriers to entry and scores of smaller operators, it’s Airgas’ integrated offerings that make the $5.2 billion firm an attractive choice for potential clients. A price increase announced yesterday should help widen the firm’s margins and help cope with expanding input costs.

    That decision is being lauded by shareholders like Third Point, a $5.5 billion hedge fund managed by Daniel Loeb. Other Third Point holdings include Potash (POT) and CIT Group (CIT).

    2010 was a spectacular year for shareholders of Family Dollar Stores (FDO), as the company’s stock rallied more than 78% last year. That strong performance has come as a surprise to the scores of analysts who expected sales to slump as consumer confidence rebounded post-2008. Now, in 2011, investors are feeling optimistic about continued success. Management agrees, and last week, it announced a 16.1% dividend increase that brings the firm’s quarterly dividend to 18 cents per share.

    While the recession provided significant challenges for many business, it also came with a number of major benefits for Family Dollar as consumers traded down to stretch out their discretionary income. As the recession has dampened, Family Dollar has grown alongside its shoppers’ pocketbooks, upgrading stores and broadening its geographic footprint at bargain prices. It’s reasonable to expect the company’s growth to continue in 2011.

    A strong balance sheet and massive cash flow generation abilities means that Family Dollar’s dividend should continue for the foreseeable future. Large investors such as Renaissance Technologies are going to benefit -- the hedge fund nearly tripled its position in FDO as of its latest filing. Other Renaissance Technologies positions include Apple (AAPL) and Lorillard (LO).

    With an A- rating from TheStreet Ratings, Family Dollar is one of the top-rated multiline retail stocks . It recently showed up on a list of 20 stocks with large insider selling.

    $12 billion publishing firm The McGraw-Hill Companies (MHP) is another firm that upped its quarterly payouts to shareholders last week. The company’s 6.4% increase brings its dividend to 25 cents per share, a 2.56% yield.

    Despite challenges for most publishers, McGraw-Hill’s big exposure to financial markets (the company owns Standard & Poors and J.D. Power and Associates) and textbook publishing has made avoiding secular headwinds considerably easier. And that’s not likely to change -- especially as McGraw-Hill aggressively pursues additional revenues from its ratings business.

    That’s good news for major investors such as Brian Rogers, who manages the T. Rowe Price Equity Income Fund (PRFDX), a mutual fund that holds a four-star rating from Morningstar. Other Equity Income Fund positions include JP Morgan Chase (JPM) and Chevron (CVX).

    For the rest of this week’s dividend stocks, 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.