The Return of Rising Dividends

After the worst year in history for dividends, companies are back to showing shareholders the money. The number of companies raising their dividends this quarter stands at the highest rate in two years, according to Standard & Poor's Capital IQ. In the last 30 days alone, nearly 40 companies in the S&P 500, ranging from Wal-Mart Stores (WMT) to General Dynamics (GD), have hiked their annual payouts.

That's great news for income investors who suffered through dividend cuts of historic proportions in 2009. Not only did companies collectively slash payouts by about $58 billion last year but the number of companies that did manage to raise dividends fell 36%, according to S&P.

Fortunately, the worst appears to be behind us. S&P forecasts a 5.6% increase in dividends paid this year. And make no mistake, dividends aren't important just to folks who depend on the income stream. Raised and reinvested dividends are critical to long-term share performance. Over the last eight decades they've accounted for nearly 45% of the broader market's total return.

Headed in the Right Direction

Take Colgate-Palmolive (CL). Shares in the seemingly pokey consumer-products company have generated a total return over the last 25 years of more than -- wait for it -- 4,600%. (The S&P 500, by comparison, returned 1,120%.) Have a look at Colgate's history of dividend hikes and you can see how a toothpaste-and-soap company (and the magic of compounding) could be so remunerative.

S&P says it will likely take two to three years for dividends to reclaim levels seen at the height of the last bull market, but at least they're headed in the right direction. And perhaps just as important, dividend hikes signal confidence on the part of company managements that business is improving -- meaning the cash will indeed be there to return to shareholders.

Here are 10 key blue chips that announced dividend hikes over the last month:

3M (MMM), the conglomerate and Dow component, hiked its quarterly dividend 3% to 52.5 cents a share.

Altria Group
(MO), the maker of Marlboro cigarettes, raised its quarterly dividend 2.9% to 35 cents a share.

(CSX), the railroad giant, raised its quarterly dividend 9% to 24 cents a share.

(KO), the beverage giant and Dow component, lifted its quarterly dividend 12.5% to 9 cents a share.

(GPS), the apparel retail giant, hiked its annual dividend 18% to 40 cents a share.

General Dynamics
, the defense contractor, raised its quarterly dividend 10.5% to 42 cents a share.

(KMB), the maker of Kleenex tissues and Huggies diapers, hiked its quarterly dividend 10% to 66 cents a share.

PepsiCo (PEP), the beverage and snack giant, lifted its quarterly dividend 6% to 45 cents a share.

Qualcomm (QCOM), the mobile semiconductor giant, hiked its quarterly dividend 12% to 19 cents a share.

, the Dow component and world's largest retailer, raised its annual dividend 11% to $1.21 a share.