But how do you know if a stock is "quality"?

Go for dividends.

It's a no-brainer that quality matters in a market like this. But how do you know if a stock is "quality"?


Dividends are one indicator. That's because dividend income--which is essentially a portion of company profits paid out to shareholders--helps offset fluctuations in a stock's share price, creating a cushion during turbulent markets. 


"During trying times, dividend-paying stocks tend to do well," says Paul Alan Davis, portfolio manager of the Schwab Dividend Equity Fund. Davis also looks for companies on solid footing, which have plenty of cash and aren't in "financial straits."  During the first 11 months of year, Davis says, the S&P's dividend-paying stocks fell by roughly 36 percent; meanwhile, nondividend payers were down about 45 percent. 


You'll find those dividend payers in more developed industries such as consumer staples, utilities, and healthcare. Examples include Philip Morris, Coca-Cola, General Mills, Bristol-Myers Squibb, and Pfizer.