With volatility returning and the market continuing with its up and down pattern, many investors have once again sought the comfort of dividends to ride out the storm. According to industry group Lipper, since the beginning of the year, more than $12.6 billion of investor's money has gone into dividend focused funds like the iShares Dow Jones Select Dividend Index (NYSE:DVY). With CDs, Treasury bonds and other traditional fixed-income assets yielding next to nothing and overall market continuing to freak, these blue chip dividend payers could be the best way to power a portfolio throughout the upcoming months.
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Higher Payouts Ahead
For investors, dividends have once again returned to the spotlight as the focus has shifted towards quality and that story is getting better. After a record number of firms cut payouts during the financial maelstrom of 2008-2009, dividend payouts are once again on the rise. For example, Verizon (NYSE:VZ) recently raised its already hefty dividend by nearly 3%.

The potential is certainly there for continued higher payouts. Non-financial firms within the Vanguard S&P 500 (NYSE:VOO) are currently sitting on a record $1.5 trillion in cash. Another historic point about today's environment: stocks only pay 29% of their profits to shareholders as dividends. That's the lowest on record according to Merrill Lynch. Analyst's estimate that the index's dividend yield will rise to 2.4% in 2012 and 2.8% in 2013. Since the 1920s, the S&P 500's dividend rate has averaged 4.2%. This leaves plenty of potential payout growth for investors.

But in today's low rate environment, those rising payouts are just icing on the cake. Blue chip stocks with strong corporate balance sheets and cash flow are already paying much more than treasuries. Yields on the 10-year Treasury bond recently touched just 2%. When accounting for inflation, that equates to a 0% yield.

Building A Better Income Portfolio
With the Federal Reserve almost guaranteeing that interest rates will stay at zero till 2013 and market volatility rising, now could be the best time for investors to add strong dividend payers to a portfolio. Funds like the WisdomTree Large Cap Dividend (NYSE:DLN) or iShares High Dividend Equity (NYSE:HDV) make adding a swath of dividend payers easy. However, some of the best values lie within individual blue chips.

Ketchup and mustard remains a boring product, but boring can be beautiful as illustrated by HJ Heinz's (NYSE:HNZ) recent quarter. The purveyor of pickles recently reported robust sales growth across emerging markets. Places like China, Brazil and India only accounted for about 9% of sales in 2005. Emerging markets will make up about 23% in fiscal 2012. Shares of Heinz yield a juicy 3.7%. Similarly, cereal giant General Mills (NYSE:GIS) yields 3.3%.

Owning 45% of Verizon, English telecom Vodafone (NYSE:VOD) could be a way to add some international spice to dividend portfolio. The company provides mobile services in Europe, Africa, Asia Pacific and the Middle East, allowing investors to tap into both develop and developing cellular growth. Shares of Vodafone yield 7.3%. Also blending the line between developed and emerging market holdings, Spanish telecom Telefonica (NYSE:TEF) yields 8.6%.

Finally, as worries about slowing economic growth have taken shape, many large industrial firms have seen their share prices decline. Strong industrial dividend payers like Honeywell (NYSE:HON), Illinois Tool Works (NYSE:ITW) and Emerson Electric (NYSE:EMR) are all trading closer to their 52 week lows and yield over 3%.

Bottom Line
Investors looking for good income and protection from market volatility are beginning to take a hard look at dividends once again. Over the next few months; strong dividend payers could form the best defense in an unsure market. The previous stocks along with firms like drug maker Eli Lilly (NYSE:LLY) make ideal selections. (For additional reading, take a look at Dividend Tax Rates: What Investors Need To Know.)

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Tickers in this Article: DVY, VOO, VZ, DLN, HDV, HNZ, GIS, VOD, TEF, HON, ITW, LLY, EMR

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