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Defensive investors regularly seek high quality dividend stocks to achieve sustainable returns, even in bear markets. In that regard, the S&P 500 Dividend Aristocrats Index, which tracks 42 blue-chip S&P 500 companies that have increased their dividends for at least 25 consecutive years, is a popular reference for many dividend investors.

David Fish’s U.S. Dividend Champions list has also become very appealing to some dividend investors that look for a starting point in their research. As “Dividend Champions”, Dave Fish compiles a complete list of all U.S. stocks that have increased their dividend payout for at least 25 consecutive years. In addition, the author presents two separate sub-lists as nominees for future Dividend Champions: “Dividend Contenders” that have increased their payouts for 10-24 years and “Dividend Challengers” that have increased their payouts for 5-9 years. The whole list can be found here.

We believe the European debt crisis will lead to more money printing in both Europe and the United States. We think the S&P 500 Dividend Challengers that are able to increase dividends are attractive options for defensive investors that demand sustainability, better risk-return combination and some inflation protection.

Below, we provided a list of 30 stocks from the Dave Fish’s S&P 500 Dividend Challengers and showed how they have performed this year:

Divi\dend Yield

Dividend Payout Ratio 2010

YTD Return

Lockheed Martin

LMT

5.47%

55%

6.78%

Darden Restaurants Inc.

DRI

3.97%

50%

-4.78%

Dominion Resources

D

3.94%

59%

19.59%

Centerpoint Energy Inc.

CNP

3.92%

81%

29.59%

Northorp Grumman Corp.

NOC

3.82%

30%

-9.76%

Intel Corp.

INTC

3.81%

41%

6.64%

Heinz H.J. Co

HNZ

3.81%

62%

3.26%

Hasbro Inc.

HAS

3.58%

46%

-27.48%

Campbell Soup Co.

CPB

3.55%

47%

-3.89%

Edison International

EIX

3.42%

37%

-3.59%

Kellogg Co.

K

3.22%

52%

6.05%

General Mills Inc.

GIS

3.20%

49%

10.03%

Harris Corp.

HRS

3.11%

23%

-21.53%

Microsoft Corp.

MSFT

3.04%

30%

-5.48%

Analog Devices Inc.

ADI

2.95%

42%

-9.45%

L-3 Communications

LLL

2.78%

22%

-7.81%

Best Buy Co Inc.

BBY

2.64%

19%

-31.36%

Deere & Co.

DE

2.46%

35%

-19.25%

CSX Corp.

CSX

2.38%

36%

-7.58%

ITT Corp.

ITT

2.27%

23%

-17.08%

Ameriprise Financial Inc.

AMP

2.26%

21%

-31.38%

International Flavors & Fragrances

IFF

2.11%

37%

6.33%

Kroger Co.

KR

2.02%

26%

0.41%

Assurant Inc.

AIZ

1.98%

14%

-5.13%

Airgas Inc.

ARG

1.93%

38%

6.04%

Cummins Inc.

CMI

1.78%

31%

-18.89%

CVS Caremark Corp.

CVS

1.48%

19%

-3.31%

NIKE Inc.

NKE

1.39%

28%

3.91%

AmerisourceBergen Corp.

ABC

1.27%

21%

7.54%

Costco Wholesale Corp.

COST

1.21%

33%

12.13%

AVERAGE

2.83%

37%

-3.65%

SPY

-7.69%

Since the beginning of this year, the average YTD return of these 30 stocks was -3.45% vs. -7.69% for the SPY. All these stocks except two – CNP and HNZ – have a dividend payout ratio of less than 60%. The average dividend pay-out ratio of those stocks is 37% and the average dividend yield is 2.83%.

Here are the 10 highest dividend yielding Dividend Challengers stocks in our list:

Lockheed Martin (LMT): Lockheed Martin is a U.S. corporation operating in aerospace, defense, security and advanced technology industries worldwide. LMT has a 5.47% dividend yield and gained 6.78% since the beginning of this year. The stock has a market cap of $24.33B and a P/E ratio of 9.61. Both Jean-Marie Eveillard's First Eagle and John Shapiro's Chieftain Capital had more than $200 Million in LMT at the end of June 2011.

Darden Restaurants Inc. (DRI): Darden Restaurants Inc. is a U.S. company operating full-service restaurants in the United States and Canada. DRI has a 3.97% dividend yield but lost -4.78% since the beginning of this year. The stock has a market cap of $5.70B and a P/E ratio of 12.73. Patrick McCormack is the most prominent DRI investor.

Dominion Resources Inc. (D): Dominion Resources Inc. is a U.S. utility company supplying electricity and natural gas to North Carolina and Virginia. D has a 3.94% dividend yield and returned 19.59% since the beginning of this year. The stock has a market cap of $28.51B and a P/E ratio of 17.07. Phill Gross’ Adage Capital holds the largest D position among the 300-plus funds we are tracking.

Centerpoint Energy Inc. (CNP): Centerpoint Energy Inc. is a utility company distributing electricity and natural gas in the United States. CNP has a 3.92% dividend yield and returned 29.59% since the beginning of this year. The stock has a market cap of $8.39B and a P/E ratio of 16.29. James Dinan’s York Capital Management had more than $125 Million in CNP at the end of June.

Northrop Grumman Corp.: Northrop Grumman Corp. is a global company operating in aerospace, defense technology and electronics industries worldwide. NOC has a 3.82% dividend yield but lost -9.76% since the beginning of this year. The stock has a market cap of $14.39B and a P/E ratio of 8.10. Jean-Marie Eveillard holds more than $200 million of NOC.

Intel Corp. (INTC): Intel Corp. is a global technology company that manufactures and supplies microprocessor products worldwide. INTC has a 3.81% dividend yield and gained 6.64% since the beginning of this year. The stock has a market cap of $114.73B and a P/E ratio of 9.89. Ken Fisher is among the more prominent INTC investors.

Heinz, H.J. Co. (HNZ): Heinz, H.J. Co is an American company providing food products worldwide. HNZ has a 3.81% dividend yield and returned 3.26% since the beginning of this year. The stock has a market cap of $15.95B and a P/E ratio of 16.51. Nelson Peltz’s Trian Partners holds nearly $100 Million of HNZ.

Hasbro Inc. (HAS): Hasbro Inc. is a large toy and game company operating worldwide. HAS has a 3.58% dividend yield but lost -27.48% since the beginning of this year. The stock has a market cap of $4.34B and a P/E ratio of 12.32. John Brennan and Tom Russo are the most prominent HAS investors.

Campbell Soup Co. (CPB): Campbell Soup Co. is a U.S. company that produces and sells canned soups and related products worldwide. CPB has a 3.55% dividend yield but lost -3.89% since the beginning of this year. The stock has a market cap of $10.51B and a P/E ratio of 13.62. Mason Hawkins’ Southeastern Asset Management had more than $600M in CPB.

Edison International (EIX): Edison International is a U.S. utility company that generates and distributes electricity mainly in California. EIX has a 3.42% dividend yield but lost -3.59% since the beginning of this year. The stock has a market cap of $11.82B and a P/E ratio of 11.19. Steven Cohen holds nearly $60M of EIX.

Source: Investing in S&P 500 Dividend Challengers