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What are we looking for?

Study after study shows total returns from dividend stocks, especially dividend growers, clobber the market index returns, and trounce non-dividend payers. Today my colleague Allan Meyer and I look at companies that have raised their dividends this year, and more importantly, examine the payout ratio to see whether they might raise their payouts again.

The screen

We started with companies over $250-million in market capitalization that have increased the dividend in 2013. They are sorted by dividend yield, from the highest to lowest.

The dividend per cent change column simply shows the increase, in percentage, over the previous payout. The dividend payout ratio is the percentage of a company's profit that is paid out in dividends.

Free cash flow, in this case trailing 12 months, indicates how much cash a business generates after accounting for capital expenditures. It is essentially the money that could be returned to shareholders if the company was to grow no further. We also included each company's one-year total return.

What did we find?

The company with the highest percentage dividend increase, Pan American Silver, actually has the worst 12-month share price performance.

Toronto-Dominion Bank and Bank of Nova Scotia have the highest free cash flow and the lowest dividend increases. Next to the banks, AutoCanada Inc., which owns automobile dealerships, has the lowest percentage dividend increase; it also has the highest total return at more than 100 per cent.

Softchoice Corp., an IT company, has the lowest yield and the lowest payout ratio, and a 58.2 per cent return in the past 12 months.

This group of 21 stocks has an average one-year total return of 25.8 per cent.

While investors should do their own research, companies that boost dividends can be stellar investments for income or total-return strategies. They are capable of growing free cash flow and have disciplined management teams that are focused on generating shareholder value.

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