As you certainly know, the market is in the middle of one of its periodic hissy fits. When the housing bubble collapsed, it took much of the lending industry with it. With the ability to borrow money suddenly evaporating, all sorts of companies that depended on debt financing quickly found themselves up a very dirty creek with no paddle.

And as soon as that happened, a whole bunch of stocks got a whole lot cheaper.

Many of them deserved it. Some, however, were taken down simply because everything else was falling as well. In a panic, after all, when everyone is pulling money out of their mutual funds, even the best money managers can be forced to sell whatever they can just to meet redemptions.

When to back up the truck
When the markets are panicking, it can be tough to tell which companies truly deserve their fate, and which are the babies thrown out with the bathwater. That's especially true this time around, when company after company has claimed to be "adequately capitalized" one day, only to be begging for a bailout the next.

So how can you separate the babies from the bathwater? Look at what companies are actually doing, rather than what they're saying.

A company's dividend policy and practice is important in any market -- after all, it provides you, the investor, with an income stream above the capital appreciation of your stock. But in a volatile, panicking market like this one, it can either confirm the rosy picture its executives are claiming or clue you in to the fact that the company is swimming naked -- before the tide fully recedes.

If, as the markets are panicking, a company:

  • Raises its dividend
  • Keeps its payout ratio below two-thirds of its total earnings
  • Provides investors a decent income for their investment
  • Still manages to trade at an attractive valuation

... well, chances are that it's the real deal -- a solid company discarded out of nothing more solid than investor panic.

Take a look at the companies in this table, for instance:




Dividend Growth

Trailing P/E Ratio

American Electric Power (NYSE:AEP)





Eli Lilly (NYSE:LLY)










Wells Fargo (NYSE:WFC)





Dow Chemical (NYSE:DOW)





Reynolds American (NYSE:RAI)





They fit all of the criteria above, and despite the fact that the overall market is in shambles, they're evidence that there are still excellent companies selling at excellent prices.

And if they don't meet these criteria? You should probably stay away -- especially if management is still trying to paint a rosy picture.

The beauty of a bad market
It's not easy to steer clear of the panic and look at companies rationally, especially when the panic has become so widespread. But the truth is that when fundamentally strong companies get tripped up by bad market conditions, you have the opportunity not only to make a great investment, but to get more for your money. That holds true whether your investable money comes from your hard-earned paycheck, or from the dividends of the companies you already own.

At Motley Fool Income Investor, we can't predict the market any better than anyone else. We don't know when this crisis will ease, nor when the economy will recover. We do know, however, that as painful as this market is, it's providing us with unparalleled opportunities -- and we're getting more for our money.

We just recommended two of those opportunities to our subscribers -- and you can take a look at them with a 30-day free trial. Just click here to get started -- there's no obligation to subscribe.

At the time of publication, Fool contributor Chuck Saletta did not own shares of any company mentioned in this article. Dow Chemical and Eli Lilly are Motley Fool Income Investor selections. The Fool has a disclosure policy.