Q: Is it a good time to invest in airlines?

Q: Is it a good time to invest in airlines?

-- B.B.,

Sacramento, Calif.

A: Some have suggested it's never a good time. Superinvestor Warren Buffett, for example, has said that "if a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down."

The airline industry has to deal with challenges such as volatile fuel costs, fare wars, expensive equipment, union negotiations, complicated scheduling logistics and costly empty seats. Southwest Airlines has been a rare success in the industry, but even its 10-year average annual return is negative.

Fool's school: Dividend investing

You may have heard that dividend stocks have significantly outperformed their stingier counterparts since 1972. You may have heard that the majority of the market's historical gains have come from dividends. And you may have heard that dividend payers are the best stocks to own during bear markets. It's all true.

But dividend investing isn't all gumdrops and rainbows. More than 370 companies reduced their dividends in 2008. And more dividends were cut by S&P 500 companies in the first quarter of 2009 than in all of 2008.

To avoid the next dividend implosion, you've got to monitor a dividend payer's overall strength -- and its ability to keep paying those vaunted dividends. So as you're looking for dividend stocks for a bear market, watch for red flags: extremely high yield, industry headwinds, a spotty track record and a high payout ratio.

A dividend yield that seems too good to be true usually is, probably because the stock has plunged in price, with few investors believing in it. If an industry comes under attack, there might not be any earnings to distribute, leading to dividend cuts or suspensions. Automakers and banks are good recent examples of that.

Companies with checkered histories of dividend payments aren't the strongest candidates for investment -- especially in a bear market, when external factors might strain their resources. Fortunately, many companies have long dividend histories, demonstrating their reliability. McDonald's, for example, has paid a dividend each year since 1937.

A company's payout ratio -- calculated by dividing annual dividends by net income -- can help you determine whether it can afford to continue paying its dividend. A high ratio suggests the company is returning most of its earnings to shareholders, with little left over for other uses.

Foolish trivia

Founded in 1807, I once published Washington Irving, Edgar Allan Poe and Herman Melville. I'm no Johnny-come-lately. More successful than a hapless coyote, I publish scientific, technical, medical, professional and scholarly journals, encyclopedias, books and more. I've published the works of more than 350 Nobel laureates. My brands include For Dummies, Frommer's, Betty Crocker, Pillsbury, CliffsNotes, Webster's New World, J.K. Lasser, Jossey-Bass, Pfeiffer and Sybex. Based in New Jersey, I rake in more than $1.6 billion annually. Who am I?

Last week's trivia question: I was founded in 1897, when I made reed organs. In 1932 I introduced pipe organs. At that time I was known as Nippon Gakki Co. Ltd. I make or have made pianos, motorcycles, drums, skis, tape decks, boats, golf clubs, furniture, tennis rackets, semiconductors, synthesizers, computer drives, fancy home furnishings and snowmobiles. I've even owned and run some resorts. There are more than 700,000 students in my music schools in more than 40 nations. I hold nearly 10,000 patents and have made more than 6 million pianos since 1900.

Answer: Yamaha
