Stocks to Get You Through the Bear Market

I don't know about you, but lately I've been spending my time fighting the urge to sell. My portfolio has become smaller and redder by the day -- and there's no end in sight. Watching the losses stack up is becoming unbearable.

Which got me to thinking ...

WWBD?
What would Buffett do?

As hard as I might try, I can't convince myself that he would sell and cut his losses. Every indication says he would patiently wait things out and probably add to his positions, or open new ones. And he is, with recent investments in preferred shares of both Goldman Sachs and General Electric.

His ability to invest without falling prey to the fear of uncertainty is what has made him the greatest investor of all time.

But that's Buffett, not me. And even though I know what I ought to do, I'm still plagued by anxiety -- and I'm nowhere near as patient as he is. What can investors like me do when panic sets in?

Get paid to wait!
Those who, like me, are made impatient and anxious by this bear market should consider investing in dividend-paying stocks -- which offer the closest thing today's market has to a guaranteed gain.

As I pointed out at the beginning of the year, as stock prices drop, dividend yields rise -- which means that some of the world's top companies now also boast mouthwatering yields. And those yields can provide a nice return on your investment, even when the market itself is red-lining.

But it's important not to focus on a dividend yield alone, as recent happenings in the stocks below make clear:

Company

Problem With Dividend

E.W. Scripps (NYSE: SSP  )

Dividend recently suspended as newspaper sales struggle and ad revenues slow.

Carnival (NYSE: CCL  )

Dividend recently suspended as pinched consumers limit vacation spending.

Bank of America

Dividend recently cut as it tries to recuperate its business strength.

Even in a bear market, growing companies that pay dividends can be too good to be true -- so do your research.

Due dividend diligence
It's important to buy dividend-paying companies that have strong fundamentals and the ability to increase their dividends over time. Although dividend stocks will get you through this bear market, they should also have the qualities necessary to become a core holding of your portfolio.

James Early and Andy Cross, co-advisors of Motley Fool Income Investor, like to find dividend-paying companies that have:

  • A dividend fully funded though free cash flow.
  • Improving operations.
  • A manageable debt load (less than 60% of capital).

The following companies fit those criteria, and all of them are large caps with yields of 5% or greater and dividend payments that have increased over the past year:

Company

Market Cap

Dividend Yield

Trailing-12-Month Dividend Yield Growth

AXA (NYSE: AXA  )

$39 billion

7.2%

13.2%

Eli Lilly (NYSE: LLY  )

$37 billion

5.6%

9.6%

AmBev (NYSE: ABV  )

$26 billion

7.7%

356.1%

BB&T (NYSE: BBT  )

$11 billion

5.6%

7.6%

Data from Capital IQ, a division of Standard & Poor's, as of Nov. 6, 2008.

If you'd like to see what dividend-paying companies we're recommending now, you can take a 30-day free trial of Income Investor. James and Andy provide two new high-yielding stocks every month, and -- thanks to current market conditions -- they have quite a list of companies to choose from. You can click here to get started -- there's no obligation to subscribe.

This article was first published on July 22, 2008. It has been updated.

Fool analyst Adam J. Wiederman owns shares of General Electric but of no other companies mentioned above. Bank of America is an Income Investor recommendation, as are Eli Lilly and BB&T. The Fool has a strict disclosure policy.


Read/Post Comments (3) | Recommend This Article (10)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 09, 2008, at 2:34 AM, dividendgrowth wrote:

    BP, RDSA, TOT all pay more than 6% yield and they are not nearly as risky as those leveraged financials in your example.

  • Report this Comment On November 10, 2008, at 4:42 AM, mtghack wrote:

    Watch the divys from ADRs fall as the trend of the falling US dollar reverses. BAC yields 6.2% even after the 50% cut, and that's a company that I believe in.

  • Report this Comment On December 01, 2008, at 1:35 PM, vest0r2 wrote:

    I bought GE recently. It's dropped 30%. I am feeling like Wile E. Coyote.

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