The payouts come as companies tap into a cash hoard they have built up the past few years. U.S. companies have a record $2 trillion-plus in cash on hand.

"Corporations are flush with cash, and that cash sitting in the corporate coffers is earning next to nothing," Rob Leiphart, an analyst at Westport, CT-based market research firm Birinyi Associates Inc., told The Wall Street Journal. "Companies have to do something with it."

They've accumulated their large cash piles in part by cutting expenses and taking advantage of low interest rates to borrow funds.

Companies also are willing to increase payouts because of improved confidence in the economy at a time when the Dow has hit record levels and unemployment just fell to a four-year low of 7.7%.

"The increases in dividends could be a sign of normalization in the economy; a lot of the increases are restoring dividends to the pre-2008 level," says Money Morning Global Investing Strategist Martin Hutchinson.

Dividends are how investors get the most return for their money. It's estimated dividends and reinvestment of dividends can account for 85%-90% of total stock market returns.

Dividend stocks also tend to outperform non-dividend payers in bull and bear markets, as this data shows...

According to a Ned Davis Research study that measured performance from 1972-2011, dividend stock returns averaged 20.8% in bull markets compared with 17.4% for non-dividend stocks. In bear markets, dividend payers fell 13.5%, compared with a 26.1% plunge for non-dividend payers.

And dividend-paying stocks are more attractive to investors than savings accounts and Treasury notes, which have much lower yields.

But investors need to be careful: Not all dividend stocks are created equal.

Some companies spend too much money on stock buybacks in relation to dividend payouts. Stock buybacks can be a big negative, according to Hutchinson.

"The truth is buybacks are positively damaging to the interests of ordinary shareholders," Hutchinson said. "Buybacks endanger the dividend because they increase the chance of running out of money in a downturn."

Buybacks manipulate earnings and can make a company appear to be growing when it's not. Plus, management tends to favor buybacks over dividends when given the choice. That's because managers have ownership largely in the form of stock options - those shares receive no dividends.

Critics think stock buyback money should instead be reinvested in the company.

To pick the best dividend stocks, investors should focus on companies that can sustain their dividend payouts and have a history of increasing them.

Hutchinson's favorite way to play dividend-paying stocks is through what he calls "heirloom stocks."

These are companies that have not only maintained dividends, but have increased dividends every year for at least 30 years.

One example is The Procter & Gamble Co. (NYSE: PG), which has raised dividends every year since 1954 and yields 2.91%.

A couple other solid dividend stocks to invest in are ABB Ltd. (NYSE ADR: ABB) and Altria Group Inc. (NYSE: MO).

ABB entered the NYSE in 2001 and is on its way to becoming an heirloom stock. It is a global leader in power and automation technologies and yields 3.16%.

Altria is a holding company involved in the tobacco industry whose subsidiaries include Philip Morris. It has raised its dividend 46 times in the past 43 years and yields 5.15%.

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• BlackRock:
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