Electricity pylons © Digital Vision., Photodisc, Getty Images

Let's talk today about dividends. Specifically, dividend-paying utility stocks.

How do you tell if a stock in this beaten-down sector yields enough to make it a buy in the current risky market?

The looming possibility that the Federal Reserve will start to taper off its $85 billion in monthly purchases of Treasurys and mortgage-backed securities has sent global financial markets into a tizzy of guessing.

Suddenly, income investors who have been longing for anything paying more than 2% are confronted with 10-year Treasurys paying 2.8% and dividend stocks with yields of 4%, 5% or more.

The problem, though, is figuring out whether those yields are worth the risk.

Prices of bonds and dividend-paying stocks have plunged. They could keep falling. What look like fat dividend yields might not be adequate compensation for the risk of losses to capital.

And maybe tomorrow yields will be even higher.

Frankly, we're all guessing here. What I'm sure of is that all this guessing will produce overreaction and mispricing -- and that I'd like to be ready to pounce when the inevitable overreaction produces attractive mispricing.

But I've also started to see scattered examples of dividend-paying stocks, even in the battered utility sector, with current yields that look like adequates return for likely risks to capital.

image: Jim Jubak

Jim Jubak

I argued recently that you want to make sure you have cash on the sidelines ready to put to work if September and October produce some bargains. Today I'll point you to specific stocks in parts of the market where I think current yields are a good value.

I'll be laying out what you should be searching for in utility stocks if you're trying to find a high yield. Next week, I'll focus on master limited partnerships and real estate investment trusts.

Educated guesses 

First, though, let me explain why "guessing" is likely to produce bargains in the financial markets.

I'd break down "guessing" into two parts: First, there's the guessing of "what's it worth" in asset classes clearly connected to the Federal Reserve's program of asset purchases; second is the guessing about "what's connected." For example, if the Fed does start to taper off its purchases, how will that affect seemingly unrelated assets, such as Brazilian stocks?

Today and next week I'll focus on the first kind of guessing. It makes sense that if the Fed scales back its purchases of Treasurys and mortgage-backed paper, yields on those assets will climb. And with Treasurys serving as the benchmark for so much of the income sector, it makes sense that yields will rise across much of the financial market, and prices of these assets will fall.

The guessing here involves estimating the effects of a Federal Reserve taper that is, so far, unspecified in its schedule and dimensions.

The 10-year U.S. Treasury closed at a yield of 2.85% on Aug. 16. A month ago, the yield was 2.53%. A year ago it stood at just 1.81%. And a year from now?

Of course, where the yield is headed depends on far more than just the pace of any Fed taper. The yield on the 10-year Treasury note in August 2014 also depends on the inflation rate, the strength of the dollar, the availability of attractive alternatives, growth in the U.S. economy and on the level of fear in the financial markets -- to name just a few factors.

Not to belabor the obvious, but no one knows for sure what any of those additional factors will look like. (Just as we don't know, more immediately, if we'll see a government shutdown over the budget and the debt ceiling at the end of September.)

But the inability to know has a powerful effect. With yields already so low and the specifics of the Fed's tapering unknown but apparently set to begin soon, selling strikes many income investors as the best policy. In June, for example, overseas investors sold U.S. Treasurys at the fastest pace on record. Foreign investors (mostly in China and Japan) sold $40.8 billion in Treasurys in the month, according to the U.S. Treasury.

Utility stocks, as an income vehicle with Treasury-like qualities and clearly at risk from any Fed taper, have been hit hard on increasing worries of a September or October move by the U.S. central bank. The iShares Dow Jones U.S. Utilities (IDU) exchange-traded fund is down 4.1% in the past month. Some individual utility stocks have been hit even harder, especially recently. Duke Energy (DUK), the largest regulated utility in the United States, declined 4.2% in the week that ended Aug.16. Southern (SO) declined 5.2% in the month through Aug. 16 and has lost 7.4% in the past three months.

That pummeling on price has driven dividend yields on utility stocks to what, initially, look like very attractive levels. Duke Energy now shows a dividend yield of 4.7%; the dividend yield for Southern is 4.8%.

The question for utility stocks, as for Treasurys and other income vehicles: Are those yields enough? Are they attractively high now or due to get yet higher as the Fed taper begins? And would any dividend payout be more than wiped out by a tumbling stock price in the face of rising interest rates after the Fed begins reducing its asset purchases?

So many uncertainties, so much to guess at. You can understand why utility stocks, like Treasurys, have headed lower. There's not much in this situation to encourage anyone to buy.

Unfortunately, I don't have any magic solution for resolving these uncertainties. I suspect that the Fed's reduction in asset purchases will be very slow and that the move's effects will be less damaging than the markets now reflect. But that's only a suspicion, and I'm very reluctant to advise a course of action based on a hunch.

Click here to become a fan of MSN Money on Facebook

Fortunately, I think there is a way to approach the uncertainty the Fed has introduced into the income markets. It doesn't yield a big-picture call on any sector, but it does give investors a way to find good individual stocks in this environment.