One Way to Protect Your Portfolio From a Market Downturn

Market volatility got you down? You're not alone, according to the latest research from the Investment Company Institute. The ICI reports that investors withdrew about $30 billion from equity mutual funds in May, the worst monthly outflow since Lehman Brothers filed for bankruptcy protection in the fall of 2008.

Will this decision to "sell in May and go away" came back to haunt investors? Motley Fool analyst Rich Greifner thinks so. Rather than exit stocks completely, Rich advises investors to focus on steady, stable, dividend-paying stocks.

These stocks probably won't soar in a bull market, but stable dividend payers tend not to fall as much when times get tough. And if the stock market does stumble, investors can reinvest their dividends and accumulate shares on the cheap. According to Wharton professor Jeremy Siegel, this reinvestment helps dividend payers beat the market over the long haul.

When selecting dividend payers, Rich recommends that investors focus on companies with strong balance sheets, recurring revenue streams, and copious cash flow. In addition, he loves to see a company with a long history of dividend payments -- and a tendency to raise that dividend over time. To protect your portfolio against a potential market downturn, Rich recommends buying stalwarts such as Coca-Cola (NYSE: KO  ) , Procter & Gamble (NYSE: PG  ) , and Johnson & Johnson (NYSE: JNJ  ) , each of which boasts dominant market share, diversified revenue streams, and a dividend yield exceeding 3%. 

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Rich Greifner owns no shares of any company mentioned in this article. The Motley Fool owns shares of Coca-Cola and Procter & Gamble. Coca-Cola, Procter & Gamble, and Johnson & Johnson are Motley Fool Income Investor recommendations. Coca-Cola is also an Inside Value selection. The Fool has a disclosure policy.