Below are some companies that understand the importance of growing their cash dividends:

NV Energy (NVE) distributes electricity throughout Nevada, as well as parts of northeastern California, and natural gas in northern Nevada. October 29th the company increased its quarterly dividend 9.1% to $0.12/share. The dividend is payable on December 22, 2010, to shareholders of record on December 7, 2010. The ex-dividend date is December 3, 2010. The yield based on the new payout is 3.47%.

RockTenn (RKT) manufactures packaging products, recycled paperboard, containerboard, bleached paperboard and merchandising displays. October 29th the company raised its quarterly dividend 33% to $0.20/share. The dividend is payable on Nov. 22 to shareholders of record on Nov. 9. The ex-dividend date is Nov. 5. The yield based on the new payout is 1.38%.

Exterran Partners (EXLP) provides natural gas contract compression services to customers throughout the United States. October 29th the partnership increased its cash distribution to $0.4675/unit. The distribution is payable on November 12, 2010 to unitholders of record at the close of business on November 9, 2010. The yield based on the new payout is 7.91%.

Mercury General (MCY) writes a full line of automobile coverage for all classifications of risk. November 1st the company raised its quarterly dividend to $0.60/share. The dividend is payable on December 30, 2010 to shareholders of record on December 16, 2010. The ex-dividend date is December 14, 2010. MCY is a Dividend Achiever and has raised its dividend for 23 consecutive years. The yield based on the new payout is 5.6%.

Cognex Corporation (CGNX) is a provider of machine vision products that capture and analyze visual information used to automate tasks where vision is required. November 1st the company increased its dividend 33% $0.08/share. This increase follows the 20% increase announced in May of 2010 when the company’s Board of Directors increased the dividend from $0.05 per share to $0.06 per share. The yield based on the new payout is 1.08%.

Meadowbrook Insurance (MIG) develops and manages specialty risk management programs for defined client groups and their members in the U.S. November 1st the company raises its quarterly dividend to $0.4/share. The yield based on the new payout is 1.70%.

Principal Financial (PFG) offers businesses, individuals and other clients various financial products and services, including insurance, retirement and investment services. November 1st the company increased its annual dividend 10% to $0.55/share. The dividend is payable on December3, 2010 to shareholders of record as of November 19, 2010. The ex-dividend date is November 17, 2010. The yield based on the new payout is 2.00%.

Emerson (EMR) designs and supplies product technology and delivers engineering services and solutions to a wide range of industrial, commercial and consumer markets around the world. November 2nd the company raised its quarterly dividend 3% to $0.345/share. The dividend is payable December 10, 2010, to stockholders of record November 12, 2010. The ex-dividend date is November 10, 2010. EMR is a Dividend Aristocrat and has raised its dividend for 53 consecutive years. The yield based on the new payout is 2.52%.

Kimco Realty (KIM) is one of the largest U.S. owners and operators of neighborhood and community shopping centers. November 2nd the company increased its quarterly dividend 12.5% to $0.18/share. The dividend is payable January 18, 2011, to shareholders of record as of December 30, 2010. The ex-dividend date is December 28, 2010. The yield based on the new payout is 4.25%.

AmTrust (AFSI) is a multinational specialty property and casualty insurance company. November 3rd the company raised its quarterly dividend 14% to $0.08/share. The dividend is payable on January 18, 2011 to shareholders of record as of January 3, 2011. The ex-dividend date is December 30, 2010. The yield based on the new payout is 2.09%.

Yamana (AUY) has gold production, gold development stage properties, exploration properties, and land positions in Brazil, Argentina, Chile, Mexico and Central America. November 3rd the company increased its quarterly dividend by 200% to $0.12/share. The dividend is payable on Jan. 14 to shareholders of record on Dec. 31. The ex-dividend date is Dec. 29. The company also announced a special dividend of 1c/share. The yield based on the new payout is 4.46%.

Textainer (TGH) engages in the purchase, management, leasing, and resale of a fleet of marine cargo containers worldwide. November 4th the company raised its quarterly dividend to $0.27/share. The yield based on the new payout is 4.02%.

Maiden Holdings (MHLD) provides primary insurance on a surplus lines basis focusing on non-catastrophe property and inland marine. November 4th the company increased its quarterly dividend 7.7% to $0.07/share. The dividend is payable on January 18, 2011 to shareholders of record as of January 3, 2011. The ex-dividend date is December 30, 2010. The yield based on the new payout is 3.58%.

Lexington Realty Trust (LXP) holds a portfolio of office, industrial, and retail properties, with a focus on single-tenant properties. November 4th the company raised its quarterly dividend 15% to $0.115/share. The dividend is payable January 14, 2011, to unitholders of record as of December, 31, 2010. The ex-dividend date is December 29, 2010. The yield based on the new payout is 5.56%.

Tupperware Brands (TUP) is a portfolio of global direct selling companies, primarily focused on storage and serving solutions for the kitchen and home (through the Tupperware brand) and beauty and personal care products for consumers (through eight other brands). November 4th the company increased its quarterly dividend 20% to $0.30/share. The dividend is payable on Jan. 4 to shareholders of record on Dec. 17. The ex-dividend date is Dec. 15. The yield based on the new payout is 2.54%.

Universal Corp. (UVV) is the holding company for the world’s largest independent leaf tobacco dealer. November 4th the company raised its quarterly dividend 2.1% to $0.48/share. The dividend is payable February 14, 2011, to common shareholders of record at the close of business on January 10, 2011. The ex-dividend date is January 6, 2011. UVV is a Dividend Achiever and has raised its dividend for 40 consecutive years. The yield based on the new payout is 4.48%.

Selecting stocks with increasing dividends is critical for an income growth strategy. The above list contains stocks that recently raised their dividends; it is not a list of recommend buys. As always, due diligence should be performed before buying or selling any stock. For a list of stocks with a long string of consecutive cash dividend increases, see this list.

Full Disclosure: Long EMR. See a list of all my income holdings here.

Related Posts
- When To Sell A Dividend Stock
- Who is Ben Grossbaum and Why Should We Listen to Him?
- The Most Important Financial Statement
- Five Dividend Stocks To Buy On A Dip
- Seven Important Reasons for Dividend Investing

(Photo Credit)

I have been using my new evaluation model now for about a month now. So far, I have been quite pleased with the results. It is helping me to efficiently review a lot of dividend stocks and identify those with strong financials, that are likely to continue increasing their dividends and that are fairly priced.  As I was developing and testing the new model I noticed it had a distinct dislike of Real Estate Investment Trusts (REITs) and utilities.

This got me to looking at these classes of stocks and asking the fundamental question, ‘Are they really quality dividend investments?’ Sure both are known to have above average yields, but as any knowledgeable dividend investor will tell you, current yield is just one small part of what makes up a great dividend stock.

I currently own three utilities and three REITs.  In addition to those, I follow three other utilities and three other REITs. Let’s take a look at some of them and determine if they are good dividend investments:

REITs
Health Care Property Investors Inc. (HCP) – 0 Stars
Debt to Total Capital: 52%
Free Cash Flow Payout: 131%

Realty Income Corp (O) – 0 Stars
Debt to Total Capital: 47%
Free Cash Flow Payout: -65%

Federal Realty Investment Trust (FRT) – 2 Stars
Debt to Total Capital: 51%
Free Cash Flow Payout: 101%

Kimco Realty Corporation (KIM) – 2 Stars
Debt to Total Capital: 55%
Free Cash Flow Payout: -1753%

National Retail Properties, Inc. (NNN) – 4 Stars
Debt to Total Capital: 39%
Free Cash Flow Payout: -144%

Utilities
SJW Corp. (SJW) – 0 Stars
Debt to Total Capital: 49%
Free Cash Flow Payout: -94%

Progress Energy, Inc. (PGN) – 1 Stars
Debt to Total Capital: 56%
Free Cash Flow Payout: -36%

Atmos Energy Corporation (ATO) – 1 Stars
Debt to Total Capital: 54%
Free Cash Flow Payout: 1045%

Black Hills Corp. (BKH) – 2 Stars
Debt to Total Capital: 48%
Free Cash Flow Payout: -105%

Integrys Energy Group, Inc. (TEG) – 3 Stars
Debt to Total Capital: 18%
Free Cash Flow Payout: -47%

Consolidated Edison, Inc. (ED) – 3 Stars
Debt to Total Capital: 52%
Free Cash Flow Payout: -40%

For a company to consistently raise its dividends, it must generate strong free cash flows sufficient enough to meet other obligations, such as debt, before paying a dividend. I look for a maximum of 45% Debt to Total Capital and a maximum of 60% Free Cash Flow Payout with the last 10 years positive.

With the exception of NNN and TEG, each of the above companies failed the Debt to Total Capital and Free Cash Flow Payout tests.  NNN and TEG passed the Debt to Total Capital test while failing the Free Cash Flow Payout test. All the above companies had multiple years of negative FCF over the last 10 years thus their dividends are supported via non-operating cash such as debt issuances and property sales. Ironically, NNN was the only 4 Star stock and it just recently froze its dividend.

Most REITs and utilities may provide your income portfolio with an additional boost in yield, but may end up costing you more in the long run. I will continue to look at REITs and utilities, but they must measure up like any other stock.

Full Disclosure: Long HCP, O, NNN, PGN, TEG, ED. See a list of all my income holdings here.