Seek prize stocks in lousy market

Given the stock market’s wretched performance this year, your current retirement plan may involve a modest part-time job, such as woodworking or forgery.

Before you take up a life of crime, however, remember that really rotten markets sometimes uncover opportunities. In fact, the worse the market, the more bargains you can find. And right now, you can buy stocks and bonds of the nation’s best-run and most profitable businesses at astoundingly low prices. What’s more, you can collect dividends and interest while you wait for the economy to recover and for other investors to regain their senses.

Begin your search by eliminating the entire financial sector. Sure, there are probably good bargains there. But right now, it’s hard to tell which banks, brokers or insurers will emerge unscathed.

One simple screen is the Dogs of the Dow. These are the 10 stocks in the Dow that have the highest dividend yields.

Why is a high dividend yield doggish? The dividend yield is a company’s 12-month payout divided by its price. Many times, companies with high dividends aren’t being generous. They have gotten their share prices slashed. For example, a company that pays $1 a year per share in dividends has a 2 percent dividend when its share price is $50. If its price falls to $25, its dividend yield leaps to 4 percent. You can get more information at www.dogsofthedow.com.

For those who don’t want to pick individual stocks, an equity-income fund typically looks for stocks of strong, dividend-paying companies.

Investors have been dumping high-quality corporate bonds, too – and that means similarly high yields for retirees and pre-retirees who are comfortable with some risk. Currently, high-quality bonds are “as cheap as I’ve seen them in 50 years,” says Loomis Sayles’ star bond-fund manager Dan Fuss. Cheap, to a bond-fund manager, means that a bond’s yield is high, relative to comparable Treasury securities.

Buying individual bonds can be trickier than buying stocks, so you’re probably better off investing in a high-quality bond fund. Managers Bond, a no-load fund also run by Fuss, is one good choice.

You probably won’t buy stocks or bonds at the absolute bottom of the market. But investing in high-quality stocks and bonds now makes sense – and it’s less likely to put you in the slammer.