"An analysis of past bear markets reveals that it is not uncommon for 50% of the gains made during a bull market to be wiped out before the market reaches a bottom and a new cycle begins," notes blue chip stock specialist Kelley Wright.
In Investment Quality Trends, he reviews the history of bear markets and the role of dividends during these periods, as well as his latest list of 10 favorite blue chips stocks.
"Not since the 1930s have we seen such severe bear markets in the DJIA and S&P 500. And not since the 1930s have we seen S&P 500 volatility so high and credit spreads so wide.
"What is uncommon is for a bear market decline to be this deep and this fast. When you consider how extremely overbought and overvalued the market was by 2007, however, it makes perfect sense that not only did the extremes had to be taken out, but taken out decisively.
"The catalysts that drove investors and the markets to exceed long-established parameters of value to such an extreme degree appear to be in the process of being eliminated.
"With the 3.0% area of Undervalue having been decisively violated, the dividend yield on the Dow has reached or breached the 4.0% level on four occasions.
"Accordingly, with the global economy obviously in recession, I would not be surprised to see 5.0% and eventually 6.0% (in stages) before the bear markets end.
"While a 5.0% or 6.0% dividend yield on the Dow is not chiseled in stone, it is prudent nonetheless to be aware that there is precedent for these levels and they are consistent with past bear market yield objectives.
"If these yield objectives are reached it will not be because of poor earnings; it will be because investors will demand greater value. In market speak greater value is called ‘higher risk premiums,' in lay terms we would say 'lower prices, higher yields.
"The upside of higher risk premiums is that eventually we should realize extremely high market returns. After every market bottom since WW II the average return after one year has exceeded 35% and over 50% after two years.
"In no instance was there a negative return in the first two years. Even after the market reached the Depression low in 1932 it doubled off that low in one year and tripled within three years.
"The enlightened investor understands that market bottoms are a process. So instead of abandoning equities with the masses at the very point that real value is being realized, be patient, pick your spots, demand value and remember you are a long-term investor; this too shall pass.
"Our selection of 'The Timely Ten' blue chip stocks is are those we believe will perform best over the next five years.
"Do we believe that all 10 will go up simultaneously or immediately? Of course not. Our four decades of research and experience, however, leads us to believe that these stocks, purchased at current Undervalued levels, are well positioned for appreciation.
"The Timely Ten consists of Undervalued stocks with a S&P Dividend & Earnings Quality rating of A- or better, exemplary long-term dividend growth, a P/E ratio of 15 or less, a payout ratio of 50% or less, and debt of 50% or less. Below are our current Timely Ten:
