Bull-market mergers: 5,985 and counting

Deals, business expansions, mergers and acquisitions have been on a tear since last fall, reaching record levels.

(Money Magazine)

While the $656 billion in deals for companies like LucasFilm and Heinz (HNZ, Fortune 500) reflects buyers' faith in the U.S. economy (deals overseas have lagged), the readiness to pay up may also signal a late-stage bull market. So pick your own purchases carefully.

Your field guide

Buy the bankers: Ride growing interest in the financial sector; firms thrive on rising market and consumer confidence and get paid for deals they broker. Invest via Vanguard Financials ETF (VFH) or Oppenheimer Equity Income (OAEIX), a Morningstar five-star fund holding M&A players (sales charge: 5.75%).

Protect your yield: Make sure your favorite dividend stocks can raise payouts even if they deploy cash on deals and business expansions.

Related: 6 high-dividend, blue-chip stocks

Under the "key ratios" tab at Morningstar.com, look for a payout ratio -- the share of dividends to earnings -- below 40%. "Low ratios mean companies aren't stretching themselves to pay dividends," says S&P analyst Howard Silverblatt.

Look for value: As prices rise, lower your risk of overpayment by focusing on funds that hunt for bargains, says James Paulsen of Wells Capital Management. One option: MONEY 70 fund T. Rowe Price Equity Income (PRFDX), which holds cheaper stocks than its value-index benchmark.

Related: How to use P/E and other stock valuation tools

First Published: May 1, 2013: 7:55 AM ET

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