One of the best ways to position your assets in a volatile market is to anchor your portfolio with the safest stocks the market has to offer -- dividend-paying blue-chips. There are many reasons to seek shelter in these safe havens when times get tough:

• During volatile market periods, investors typically seek shelter in blue-chip stocks. As money rotates out of riskier asset classes and flows into large-cap value stocks, this gives a boost to blue-chip share prices.
• Blue-chip companies know how to batten down the hatches when times get tough. These are established leaders with the financial strength and stability to weather any major downturns.
• Many blue-chip firms also pay sizable dividends, putting extra cash in your account at a time when you need it most.
• If a dividend-paying stock does pull back temporarily, then by reinvesting those dividends, you can buy more shares at lower prices. Not only will this reduce your cost basis, but it will also magnify your returns whenever the stock finally recovers.
• Dividend payers are commonly undervalued, and thus are often spared the brunt of any bear market selling.

With these factors in mind, we recently searched for large-cap value stocks that are likely to swim when others around them begin to sink. To narrow the pool of candidates, we only considered companies that earned high marks in each of the following five categories:

• Proven Bear Market Performance -- By investing in firms that held steady (or even gained ground) during the last bear market, we can put ourselves in a much better position weather the next downturn.
• Rising Dividends -- When stocks are tumbling, quarterly dividend payments can help cushion the fall. Companies that have reliably increased their payouts in both good times and bad are also much more likely to deliver steady returns in the future.
• Valuation -- Stocks that are trading well above their fair value usually get punished in a down market. On the other hand, those that are undervalued often hold up relatively well.
• Profit Margins -- Earnings are essentially a function of two things: sales and margins. In an economic slump, flagging revenues may be inevitable, making margins the last line of defense. All things being equal, a company with higher margins will be better equipped to handle a market downturn.
• Balance Sheet -- Companies saddled with mountains of debt and weak interest coverage have dug themselves into a hole and may have trouble meeting their obligations when times get tough. Therefore, we generally avoid excessively leveraged firms.

Based on these stringent requirements, we found approximately fifty blue-chip companies that should continue to perform well in today's volatile market. Of those, we would feel particularly comfortable owning any of the following four stalwarts . . .

Important Note:  Throughout the remainder of this article, editors Nathan Slaughter and Paul Tracy provide an in-depth look at four high-quality blue-chip stocks that meet all of the stringent investment criteria outlined above. However, in order to view the remainder of this article, you'll need to subscribe to our value investing newsletter -- Half-Priced Stocks. After you subscribe you'll receive immediate access to this full article, as well as our monthly Half-Priced Stocks newsletter and a host of additional premium content. Please visit one of the following links to continue . . .

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