• 3 Dividend-Hungry Mutual Funds
• Dividend Champs: Decades of Higher Dividends

What s better than a company that pays a steady dividend? A company with a history of increasing dividends, year in and year out. While there s no guarantee their shares won t decline, a dividend payment can mitigate losses. And companies that increase dividends usually can withstand economic shocks, says Gary Stroik, coauthor of the book "All About Dividend Investing." Even in difficult times, they tend to be managed well enough to return a growing amount of cash to shareholders kind of like getting a pay raise every year. Standard & Poor s calls such companies aristocrats, and they ve lived up to their name. While the S&P lost 9 percent (including reinvested dividends) over the past decade, the aristocrats gained 44 percent.

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Of course, that s not to say dividend stocks are a sure bet. Dividend stocks tend to lag in the early stages of a bull market, when investors gravitate to more growth-oriented names. And as corporate profit growth slows, a slowdown in dividend increases looks inevitable. Still, the market decline has led to some impressive dividend yields, especially compared with what money-market funds and short-term government bonds are offering.

We looked for stocks with a steady history of increasing their dividends, solid balance sheets and good prospects to keep the cash flowing to shareholders. For added safety, we took a look at dividend-coverage ratios to make sure the companies had enough cash to pay their dividends and still invest in their businesses. Think of them as tortoises for your portfolio; they may not be the quickest stocks out of the gate, but their slow, steady gains should ultimately win the race.

BP

Dividend Yield: 7.3%

BP (BP) has managed to raise its dividend in all but one year since 1993, including other times when oil prices were in free fall. BP has other things going for it too: strong cash flow, promising new sources of oil and gas to replace its reserves, and a CEO determined to cut costs. It s a good turnaround story over the next couple years, says JPMorgan analyst Kim Fustier.

BP has had its setbacks, including a Texas refinery explosion and a pipeline spill in Alaska. But analysts say those widely publicized problems along with the plunge in crude prices have created a buying opportunity. BP s stock performance has trailed that of rivals like Chevron and Exxon Mobil. And it s ramping up production at big facilities in the Gulf of Mexico and Texas, following shutdowns due to accidents and hurricane damage.

With the global economy expected to slow, and demand weakening in developing markets like China, analysts see BP s earnings falling 43 percent, to $4.64 a share, in 2009. BP makes more money from upstream production than rivals like Shell, so it s more at risk of a shortfall should oil prices tumble further, notes Fustier. But many industry experts think the plunge in crude prices will only lead to shortages later, as oil companies cut back on exploration and global demand heats up again. The long-term trends still favor fossil fuels for the vast bulk of world energy use. And despite low oil prices, BP should make enough cash to support its dividend. Even with oil around $40 a barrel, says Gheit, there s no risk to the dividend.

Altria

Dividend Yield: 8.1%

For years many investors have all but written off cigarette makers, figuring that with health concerns and mountains of litigation, their days as profitable enterprises were numbered. For just as long, Altria (MO), formerly known as Philip Morris, has proven them wrong. With about half the U.S. tobacco market, Altria is a steady cash generator, thanks to a product some just can t give up regardless of its cost or the tough economic times. That has enabled the maker of Marlboro, Parliament and other cigarettes to boost its dividend in 39 of the past 41 years.

Of course, Altria and others in the industry could be in for a bumpy ride over the near term. Federal taxes on cigarettes are expected to rise this year as the government looks for ways to offset its ballooning budget deficit. That will likely cut cigarette sales. But some experts think Altria could actually benefit from some of the moves the government is considering. (The tobacco firm has supported Democrats push for Food & Drug Administration oversight of the industry.) Regulation could reduce the company s future legal liabilities and limit marketing, which could give an edge to established players like Altria. It may not be a short-term boost, says Daniel Clifton, head of policy research at Strategas Research Partners, but over the long run, it s going to be very good for the company.

For investors with a longer time frame, many of the near-term risks are manageable, analysts say. The company s strong cash flow means there s little risk the company s dividend streak will end, says Elliot Larner, analyst at the Tweedy, Browne Worldwide High Dividend Yield Value fund, which has a small interest in Altria. Even after taking on about $10 billion in debt for its recent acquisition of smokeless tobacco maker UST Inc., Larner says Altria s balance sheet shows little strain, with a debt-to-equity ratio of just over 50 percent.

Vodafone Group

Dividend Yield: 6.8%

Life without cell phone service? Money managers who own shares of Vodafone (VOD) find it hard to imagine, and that gives them comfort in the world s largest mobile-phone operator even in a worldwide recession. People would just as soon give up food as their phone, says Michael Fogarty, director of international equity research for UMB Asset Management. And that s not just in rich countries.

The slumping economy has chipped away at Vodafone s revenue, especially in hard-hit places like Spain and the U.K., but the company has tried to offset the impact by cutting costs, restructuring operations and reducing capital spending. After years of acquisitions, Vodafone is focusing on improving its profit margins, which already are among the best in the industry, says Cliff Remily, comanager of the Thornburg Investment Income Builder fund, which holds the stock.

Vodafone is running into stiffer competition in some European markets and collecting fewer roaming charges as customers cut back on travel. A deeper global recession could force customers to dial back mobile usage even more than expected, and that could slice into Vodafone s robust cash flow. Like some other telecom firms, Vodafone needs to go to the troubled credit markets to refinance debt that s maturing in coming months. But short of Armageddon and revenue falling off a cliff, UMB s Fogarty expects the company to be able to refinance without much trouble.

The U.K.-based company generates enough cash to provide about three times the coverage needed to pay its dividend. Plus, Vodafone executives gave investors added comfort late last year when they decided to smooth out dividend increases by raising the payout by a set percentage, rather than linking it to fluctuating profits. The next increase in the already hefty payout is expected to be 3.2 percent. At eight times this year s earnings, analysts say, Vodafone s shares are bargain-priced. It s not one in the portfolio you lose a lot of sleep over, says Remily.

PPG Industries

Dividend Yield: 5.4%

PPG Industries (PPG), expanding from its roots as Pittsburgh Paint & Glass, has been transforming itself into a maker of high-end coatings and specialty chemicals. Last year the company spent $3 billion to buy Dutch company SigmaKalon, which makes architectural, marine and industrial coatings. The acquisition gives PPG a big sales boost in Europe. The company also shed its longtime automotive and replacement-glass business two lines being hammered by slumping car sales. The firm had a rough fourth quarter and surprised Wall Street with earnings that fell short of estimates. This is the toughest economy I ve seen, says Chief Financial Officer William Hernandez. But he adds that PPG has been restructuring to prepare for the downturn and should pull out with ample cash to pay down debt and boost the dividend.

The Sigma-Kalon acquisition boosted PPG s debt-to-capital ratio above 50 percent historically high for the company. The firm s continued exposure to the weak auto and construction industries also hurts, and sales of architectural and aerospace products could take a hit with the slowdown in Asian economies, where PPG does a lot of business. The upshot, according to Deutsche Bank analyst David Begleiter: substantial headwinds for PPG in 2009. Still, some analysts think the stock already has these pressures baked into the price. It s fallen more than 30 percent over the past year and trades at about 11 times estimated 2009 earnings of $3.36 a share. Analysts say t this year s expected cash flow is enough to cover the current dividend three times over.

Bristol-Myers Squibb

Dividend Yield: 5.4%

Corporate executives almost always say their stock is a good value. But Bristol-Myers Squibb (BMY) CEO James Cornelius backs it up with hard cash. He bought $2.3 million worth of shares on the open market last year the first big purchase by a Bristol insider in more than five years.

But that s hardly the only reason analysts like this drugmaker, which has nearly $20 billion in annual sales. The company makes one of the world s top-selling drugs, Plavix, a blood-thinning agent. Along with its partners, it recently introduced new drugs for rheumatoid arthritis, hepatitis B, HIV/AIDS and cancer. It has more than $8 billion in cash, which it can use to make acquisitions or license drugs from other firms. And it expects to increase earnings 10-15 percent this year.

The big challenge for Bristol is what to do about the patent cliff it will face in 2012, when three of its biggest sellers, including Plavix, face competition from generic drugs. Those three drugs account for more than a third of sales, and analysts worry that the pipeline, while promising, doesn t include enough potential hits to fill the hole. One key will be whether Bristol s restructuring plan pays off. The firm has been shedding slow-growth businesses and cutting costs. It plans to spin off part of its Mead Johnson nutrition unit to raise more cash. Cornelius has outlined a strategy of buying a string of pearls small but profitable biotech drugs that could make up for patent losses. He s also signaled that he ll be disciplined with the cash; he dropped out of the running for ImClone last year after Eli Lilly trumped his $5.4 billion offer for the biotech firm.

Perhaps most compelling is the stock s value compared with other big drug companies. The shares trade at a price/earnings multiple of about 12 times estimated 2009 earnings of $3.8 billion a 15 percent premium to the drug industry average. Yet Bristol is increasing profits at more than double the sector s rate. And it offers one of the highest dividend yields. Says S&P equities analyst Herman Saftlas, If they hit enough singles and doubles, they ll offset the lack of home runs.