Wall Street is on its knees, and the taxpayer is on the hook for well over a trillion dollars to prop up the financial system.

Meanwhile, the wider US economy is sliding into a recession.

William Patalon III says there are four solid ways to protect your portfolio from these forces: 1) Buy dividend-paying stocks; 2) Buy gold; 3) Buy companies focused on overseas market; and 4) Don’t panic…

The following extract is taken from a research report published over the weekend by Money Morning…

No. 1 - Stock Up on Dividend stocks

Many investors are so scared by the wild gyrations the stock market has seen of late that they’ve jettisoned everything in their search for safety.

Not only is this a massive mistake from a timing standpoint, it’s also a major misstep because of all the dividend income those folks are going to forego.

Dividend-paying stocks tend to be more stable than their non-dividend paying brethren -particularly during rocky stock markets. In other words, stocks that have income streams attached are treated better, especially when the going gets tough.

They also outperform non-dividend paying stocks by even more in down markets than they do in up markets.
By consistently reinvesting dividends during down markets, investors can substantially expand their asset base, which puts them way ahead of the game when markets recover and stock prices soar - as they always eventually do.

And the savvy investors who owned them watched as their own portfolios easily outperformed the market averages and roundly trounced the returns of portfolios that were devoid of or light on dividend-paying shares.

And there are some excellent investment candidates. Two of the best are the PowerShares International Dividend Achievers Fund (PID) and the Alpine Dynamic Dividend Fund (ADVDX), two exchange-traded funds (ETFs) that we like a great deal.

The PowerShares International Fund is a global-income portfolio that can help you spread your risk, while also earning income. The Alpine fund is a more-specialized fund that uses a “dividend harvest strategy” that can boost the fund’s yield.

Both funds invest in companies that have survived countless business cycles, and that are likely to survive this downdraft, too.

Because dividend-paying stocks tend to be downdraft resistant, portfolios with higher yields tend to last longer and pay stronger. That’s something that’s important to all of us, but especially to investors who are nearing retirement, or who have already retired.

No. 2 - Go for Gold

When times are tough, gold soars.

And frankly, the economy has been tough: $4 gasoline, the housing crisis, rampant inflation, plummeting stocks…

But all the while, gold prices vaulted a cool 26.5% in the past year.

Missing out on gold is already costing investors a pretty penny. What’s more, most experts are forecasting gold prices to rise at least another 75.6% by the end of this year.

So, how does one profit from gold? It’s simple. You don’t have to wade through a plethora of flashy websites offering bullion or risk it all on a junior mining company.

Instead, here are five ways to profit from gold right away - from the most lucrative to the least risky.

Gold Fields Ltd. (GFI): South Africa’s Gold Fields Ltd. is the world’s fourth-biggest gold producer - with about 90 million ounces in reserve from its operations in Africa, South America and Australia.

It recently reported that its fourth-quarter production would beat its previous forecast by up to 120%.

Overall, the company has a solid balance sheet and ample reserves. But if anything scares investors away, it’s Gold Fields’ location.

South Africa mines are frequently a political tool between the country’s labor unions and state-owned utility provider Eskom Holdings Ltd. (OTC:ESKAY), which controls 95% of the country’s power.

Eskom recently jacked electricity prices up 27.5%, and unions decided to hit the government where it hurts - by striking- thus gutting the government of taxes from its vast gold profits.

That is just one example of why this stock is a risky gold play. Gold could reach another record but Gold Fields may not see a penny of it if its miners are on strike.

Yamana Gold Inc. (AUY): When gold prices are high, investors should pay extra attention to mining companies with increasing production levels because they translate into a bigger bottom line.

For its second quarter this year, Yamana Gold Inc. produced almost 10% more gold than it did in the previous quarter.

What’s more, its gold production is expected to double to 2.2 million ounces per year by 2012, primarily from its Brazil and Argentina mines.

That’s because Yamana Gold went on a spending spree in the past two years, buying up junior mines around the world to lock in reserves.

“Now it is about production, cash flow and earnings,” Chief Executive Officer Peter Marrone told Reuters.

It’s also about dividends. The company recently kicked up its investor payout by 300%, a strong vote of confidence to its production and stock performance.

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More on this topic (What's this?)

30 Reasons Why Next Great Depression Is On Its Way (Stock Trading To Go, 11/19/08)

Boston Globe: What Would a 2009 Depression Look Like? (Fund my Mutual Fund, 11/19/08)

Lessons From Modern Economic Crises (Not for the Fainthearted) (naked capitalism, 10/7/08)

Read more on Investing In Gold, U.S. Economic Cycles at Wikinvest

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