In a market in which seemingly all investments have been hammered, blue-chip stocks—battered as they might be—still can outperform fixed-income investments for retirees, investments experts here say.

That, they say, is because many blue chips still are paying healthy dividends, and with share prices for such stocks at historic lows in many cases, those that have maintained their dividends present an opportunity for retirees who want income and also who have a bit of risk tolerance to try to increase their principal when the market improves.

"We've seen prices fluctuate dramatically over the last year and a half, literally erasing a lot of assets, so unfortunately, it's like a tide that lowers all boats, says Dale Cloninger, a registered investment representative at Harbor Financial Services, a unit of Sterling Savings Bank that soon will be renamed Sterling Savings Banc Financial Services.

Yet, he says, "If your boats were Kimberly-Clark or Consolidated Edison or some of these others, you can be getting paid a pretty good dividend," even with the stock price down 40 percent.

Blue-chip stocks are stocks of companies with a long history of making money and paying dividends. Although they are considered the highest value and least volatile of stocks, they, too, have been hit hard in the current market.

Still, when you compare a blue chip that has a dividend yield of at least 4 percent to such conservative investments as certificates of deposit or money-market funds these days, the stock begins to look very attractive, says Dan Murphy, vice president of Spokane's Bozarth Investment Management Inc.

Volatility and unprecedented market changes—which he likens to a "100-year flood"—have created opportunities, but not without risk, Murphy says.

For a portion of a person's portfolio, it's "absolutely a good idea to go into some dividend payers." He adds, though, that "you just have to be aware that so many things have happened that we said couldn't happen."

Says Cloninger, "You take on the risk of market fluctuation of the underlying stock price."

Both Cloninger and Murphy say a key factor for retirees who look to such stocks to augment their income is how long they can stay invested in a stock before they need to tap into the principal.

Cloninger says if a person can afford to keep that principal invested for five to seven years, the dividend-paying blue chips can be a good choice.

"If people use dividend-paying stocks and do some diversification, certainly it's a good time to acquire," Murphy says, adding that "if people are retired and need income, they might want to find a way put a floor under their losses, to ensure they get a certain amount of income."

That's done by diversifying a portfolio, he says. Keeping a varied portfolio that includes some equities along with some that have guaranteed annual gains can help a retiree sleep at night, Murphy says. Insurance products can be more expensive, but can provide assurance of at least a 5 percent annualized return, and more if the market performs at better than 5 percent, he says.

Picking the right blue-chip stocks is important, both Cloninger and Murphy say. Some blue chips that had been good dividend payers in the past have cut their dividends in half in the last six months, a step that can be difficult to predict and is beyond an investor's control, he says.

That's why it's important to diversify even across classes of blue chips, Murphy says. He warns that putting more than 5 percent of an investment portfolio into the stocks of one company or those in a single industry or sector is risky. When companies—or entire industries, such as the financial and auto industries—have financial trouble, often the first thing they do is slash their dividends, he says.

"Look at GM and Ford; they used to pay great dividends," Murphy says.

Among those that are doing well right now are health-care companies and energy companies, including Conoco, which is paying a dividend of 4.7 percent, he says.

"Those dividends are a little steadier," than in currently poor performing financial sector stocks, he says.

Cloninger says utilities, such as Consolidated Edison and Spokane-based Avista Corp., generally are solid performers—well-run, well-managed, and relatively safe—though even Avista's dividend is less than it was eight or nine years ago, he says.

Even real estate investment trusts (REITS) can be a good investment right now, he says, because they also have been hit hard but typically are big dividend payers. REITs, however, carry higher risk right now, too, and call for careful scrutiny to predict how stable their properties are, warns Murphy.

Health care is a sector that can be affected by the political climate, Murphy says.

One way to reduce such risk but still take advantage of income-producing stocks is to invest in funds comprised of dividend-paying stocks, such as the Income Fund of America, Murphy says. That way, he says, even if some of the companies within the fund fail, the risk is spread over dozens of companies, reducing an individual's potential for big losses.

"It's best to do it in a fund so you won't get hit so hard if some fail," Murphy says.

Says Cloninger, "They literally could have 80 or 90 income stocks in there," making them a safer bet.

He says the challenge for retirees is to protect their principal investment while providing income for retirements that are lasting longer as people live longer.

"We want to invest, protect, and grow the money, with an emphasis on protection," Cloninger says.

"This is a great market to dollar cost average into," investing a set amount of money at regular intervals, Murphy says. "People will look back and say it's a great opportunity to get in. Like most opportunities, it doesn't feel like it when you're in it."