Dividends are back in style.

Of course, for some companies they never stopped being a key way to return profits to shareholders. For example, when food distributor Sysco (SYY, news) raised its dividend this quarter by 3.8%, it marked the company's 10th consecutive annual dividend increase. The 9% increase in its annual dividend declared on Nov. 21 by Lancaster Colony (LANC, news), a manufacturer of candles and specialty foods, beat even that record of consistency. Lancaster Colony is one of only 16 U.S. companies to have increased cash dividends every year for 49 years or more.

But I'm talking about something very different than those examples of dividend consistency. This quarter, I'm seeing companies that have been relative dividend tightwads decide not only to raise their payments but to raise them big time.

I'm seeing 12%, 15% and even 50% and 67% dividend increases. I've even seen one company raise its regular annual dividend payout twice this year.

For these companies, this isn't business as usual -- and it signals something new in the way these companies have decided to support their share prices in a very rough stock market.

Image: Jim Jubak

Jim Jubak

The good news for investors, of course, is that these dividend increases are coming at a time when lasting price appreciation has become extremely hard to come by.

What works and what doesn't

What's going on? I think we're seeing a recognition by some companies that share buybacks as a way to boost share prices and impress shareholders aren't very effective right now.

Part of that might come down to buyback fatigue. The volume of buybacks, in which companies purchase their own shares in the markets, peaked with $914 billion authorized in 2007. This year, the total so far comes to $445 billion -- the highest since 2007.

But when every company is doing buybacks, they don't make a company stand out. Once buybacks become a regular piece of corporate financial management, they simply don't convey much information to investors about what a company's management thinks about future performance. And, I'd argue, investors have become justifiably cynical about buybacks. Remember that total for 2007? That was for announced buybacks. Once a company has announced a buyback program with suitable fanfare, it isn't under any legal obligation to actually buy the full dollar amount of shares authorized. If the future turns out to be not quite so rosy -- or so profitable -- then, never mind.

Of course, there's also the problem that buybacks may simply not do a good job of delivering value to shareholders. Research by Fortuna Advisors shows that the median Standard & Poor's 500 Index ($INX) company engaged in stock buybacks from 2004 to 2008 delivered a return on investment of 3%. Seventy-five percent of such companies delivered a return on investment of less than 10%. The data suggest, certainly, that these companies would have been better off investing in their own businesses -- if they could identify opportunities that would return more than 10%. And if they couldn't find those opportunities, they should simply have returned the cash to shareholders in the form of dividends.

And don't forget the allure of a dividend in a stock market that isn't delivering much in the way of capital gains. If you're still bullish, a dividend is a way to get paid while you wait for the turn in prices. If you're less optimistic, a dividend yield of 3% or 4% or more is still attractive when the alternative is a 10-year Treasury paying less than 2%.

4 big increases

Some of the dividend increases I've seen recently look like naked attempts -- and good for management for recognizing the opportunity to make an impression on yield-starved investors -- to push a stock's yield above that offered by a 10-year Treasury. For example, Johnson Controls (JCI, news) raised its dividend 12.5% on Nov. 16 to a projected annual yield of 2.5%. When Emerson Electric (EMR, news) raised its annual dividend by almost 16%, the company wound up with a 3.4% projected yield on its shares. (What's a projected yield? It's the yield that you get looking forward at the declared dividend rate over the next four quarters divided by the current share price. In the case of a company that has just raised its dividend, I think this gives investors a better picture of a stock's yield than looking at the old trailing-12-month dividend payout.)

Other companies are still playing the old dividend-as-signal game, where a substantial dividend increase isn't enough to turn a piddling yield into a competitive payout but is an effective shout-out announcing that a company is back after a recent slide. I'd put the 40% dividend increase at Whole Foods Market (WFM, news) in that category. The 40% jump did grab my attention, even if the 0.6% projected yield wasn't exactly mouthwatering.

The same goes for the big 67% dividend increase announced on Nov. 3 by Starwood Hotels & Resorts Worldwide (HOT, news). That brings the annual payout to 50 cents a share, from 30 cents. The projected yield is just 0.6%, but the boost is big enough to convince me that management really, really believes that the company's mix of 70% international and 30% U.S. properties, and its strategy of managing rather than owning, will continue to work even if the global economy is relatively soft in 2012. And the dividend announcement is a good counter to the disappointing guidance for fiscal 2012 that Starwood delivered on Oct. 27, when it reported fourth-quarter earnings for fiscal 2011. For fiscal 2012, the company said, earnings per share would be $1.96 to $2.25 versus the Wall Street consensus forecast of $2.25.

The hike in the dividend, then, serves as a reminder that the lowered guidance doesn't suggest anything like the end of the world for the company's business.