Worried about the falling sharemarket? Scared to put your money anywhere but under the bed? Or are your investments bearing bitter, rather than juicy, fruit? The slowing economy has everyone scared, not least of all investors in the sharemarket. In such an environment, investors should consider companies that have the capacity to pay strong dividends. And they are out there. Trust us.

Share prices should reflect a company's earnings history and its future earnings outlook. But this is not always the case. When shares are beaten down to within an inch of their lives, chances are that their prices are no longer a true indication of their earnings potential.

In these conditions, companies that maintain a creditable return on equity are generally those that provide investors with an attractive dividend yield. With term deposit rates hovering in the 8 to 9percent range, a yield of 10percent or more is good for investors looking to keep some funds in the sharemarket. The medium- to long-term investor also has the potential to benefit from share-price rises as market conditions improve.

Factors to look for when trying to find high-yielding companies - especially in a slowing economic environment - are a strong balance sheet, expenditure on capital to keep the company going and the ability to maintain cash flow - that is, revenue.

Here are seven companies with 2008-09 forecast dividends that represent yields ranging from 11 to 14.2percent relative to their share prices as at August 1, 2008.

Happy picking.

Adcorp Australia

While media stocks have generally been abandoned in the past six months there are features of Adcorp's business that set it apart from most of its peers. New management has restructured the company and strengthened its position to make it more relevant in the advertising market. Its traditional automotive advertising business has, for the most part, been shelved.

The increase in its share price in July - that could well have resulted from yield-seeking investors - defied the general market trend. Adcorp's dividend of five cents in 2007-08 is expected to be maintained in 2008-09, representing a yield of about 12percent.

Adcorp is now focused on internet-based solutions and increasing its presence in the retail advertising market; its acquisition of Andrews Advertising has boosted its earnings from this sector. With the launch of Kelly Street Digital, Adcorp has also entered the digital advertising market.

Earnings guidance provided in February proved to be on the mark when Adcorp reported a strong 2007-08 result - employment marketing and consultancy services accounted for 69percent of its sales in the first half of the year.

Unlike recruitment companies, Adcorp's consultancy role is a more stable, less competitive, higher-margin business. The company's operations are generating strong cash flows, it is debt-free and it has substantial franking credits. Its management has indicated that the company is poised for further growth in 2008-09, suggesting that one of the highest-yielding companies in the micro-cap (that is, stocks with a very small market capitalisation) sector can continue delivering strong yields, perhaps providing a platform for share-price appreciation.

Clarius group

Clarius Group is a provider of contract and recruitment services to corporate and government organisations in the Asia-Pacific region and also has offices in China, Hong Kong, Malaysia and Singapore.

While the underperformance of Clarius's Lloyd Morgan Australia recruitment business, combined with $1.1million in restructuring costs, will result in a decline in profit in 2007-08, the company is expected to be back on track in 2008-09.

In any case, the fact that Clarius's share price has more than halved due to an anticipated fall in earnings appears to be an over-reaction.

Consensus forecasts are in line with management's guidance of earnings of about 21cents a share and a dividend of 18cents, representing a price-earnings ratio of about 6.5 and a yield of 13percent.

While 2008-09 is likely to be a year of consolidation and nominal earnings growth, Clarius's strong balance sheet should support the payment of a similar-sized dividend. With low debt levels, Clarius could also acquire bolt-on businesses that would improve its growth profile.

The company has weathered the tech-wreck and other periods of volatility, recording a profit and paying a dividend every year since listing on the Australian Stock Exchange in 1997.

Dexion

Dexion is another hard-hit micro-cap manufacturing company, with its stock having fallen from about $3 in 2007 to a recent low of 95cents.

While its share price has recovered slightly in recent weeks, it remains a poor measure of the company's performance and its yield prospects. Dexion reports on a calendar-year basis and after recording profit growth of 20percent for the 12 months to December 31, 2007 there is no reason to suggest that the company will disappoint in 2008.

Management has not wavered from its net profit guidance of $14million for 2008 and this is consistent with analyst's earnings per share forecasts of 21.5cents a year.

This represents growth of about 20percent, a level that seems achievable based on the company's international expansion, the integration of acquisitions and increased production capacity from its new manufacturing facility in Malaysia.

With a P/E ratio of about five and a dividend yield of more than 10percent, this one's worth watching.

DWS Advanced Business Solutions

Analysts at Bell Potter Research believe the information technology services sector may be a reasonably safe haven in a slowing economic environment.

While it has been a strong supporter of DWS, analyst's downgraded earnings estimates for 2007-08 and 2008-09 following the company's profit downgrade in June.

But Bell Potter maintains its buy rating and has a 12-month price target of $1.60 on the stock, about 70percent above its recent trading range. Though earnings downgrades aren't good news, the sell-off following the release of DWS's revised guidance appears overdone.

After a significant reduction in earnings per share and dividend estimates for 2008-09, DWS's current share price reflects a P/E ratio of about six and a yield of about 13percent. Not surprisingly, DWS has a share buyback program in progress, making the most of its depressed share price.

After 17 consecutive years of growth, DWS listed on the ASX in 2006. Since then the company has made three important acquisitions and expanded its east coast presence in Australia.

DWS derives revenue from a broad range of industries, providing consultancy services to other information, communication and telecommunications businesses as well as directly dealing with financial institutions and government bodies.

Revenue from the government sector is expected to increase in 2008-09 following the $8.3million acquisition of Strategic Data Management last December. SDM is well represented in DWS's traditional markets in Melbourne and Sydney and its strong presence in Canberra and Adelaide should prove to be strategically important.

IT initiatives are now seen as a business enabler rather than the cost of trying to keep up and this mentality is expected to drive investment of more than $12billion a year in IT services until 2010.

Peoplebank Australia

Peoplebank Australia is another company that appears to have been unfairly battered with its share price falling from $1.10 six months ago to a recent low of 50cents.

Management's revised guidance in July indicated that one-off integration costs relating to the company's December 2007 acquisition of Ambit Recruitment would have an impact on its earnings. Analysts subsequently downgraded earnings estimates for 2007-08 and 2008-09, and the company's recent trading range now represents P/E ratios of 5.9 and 4.4 respectively, suggesting that the decline in earnings is fully reflected in Peoplebank's share price.

From a yield perspective, Peoplebank remains one of the top stocks among emerging companies with its prospective dividend in 2008-09 representing a return of about 14percent. Also, the company is strongly leveraged to the growing demand for IT services and, more specifically, has the staff to integrate and manage new and existing systems. Peoplebank says it has the largest IT contractor database in Australia where the industry is growing at 12 to 15percent a year. A skills shortage, exacerbated by the exit of ageing in-house IT specialists, is expected to result in the continuation of outsourcing by the industry.

The company has a talent pool of 200,000 candidates and services the corporate and government sectors on a 3:1 basis. Its clients include Telstra, Coles, Centrelink and three major banks.

Reverse Corp

While Reverse Corp may not be an exciting high-growth company, for yield-seekers its business model and fundamentals are impressive. As the leading provider of reverse charges telephone calls in Australia and Britain, the company has cornered a small but niche market.

Reverse Corp owns and operates the 1800-REVERSE and 0800-REVERSE reverse charges calling services, the latter applying to calls from Britain.

The company strengthened its position in that region in June when it negotiated an agreement with leading Irish telecommunications carrier, Eircom. The agreement will enable Reverse Corp to launch a service in Ireland by September that will enable reverse charges calls to be made from all fixed and mobile phones, including out-of-credit prepaid mobile phones.

Reverse charge calls is a consumer market that should withstand economic pressures, as call recipients rarely reject a call. The service is used regularly by the 18 to 25 demographic to communicate with family.

WATPAC

While the share prices of property trusts and other companies with exposure to property development have fallen substantially, the sector can't be ignored. There are stocks that have highly promising outlooks and sturdy balance sheets that have been lumped in with the bad-news stories.

Construction and property development company Watpac's fundamentals speak for themselves. Its P/E ratio relative to 2007-08 forecasts is about six and with a yield of about 13percent in 2008-09, the company is likely to come under the radar of investors looking for value.

Watpac's pipeline of construction and development projects valued at more than $1billion are in resilient markets and high-growth areas, particularly in Queensland and the company has a good mix of government, commercial and residential projects underway.

In July, Bell Potter rated Watpac as one of its stock picks in the emerging industrials sector, commenting that the company is not typically exposed to refinancing risk and that its conservative practice of gearing property projects to 65percent worked in its favour. Bell Potter has a 12-month price target of $3.68 on Watpac, double the company's recent trading range.

Adding further spice to Watpac's story is its acquisition this month of JMS Civil and Mining Group, a business expected to generate about $120million in revenue in 2008-09. JMS is a fourth-generation mining, civil engineering and infrastructure development company that has long-established relationships with government clients and blue-chip corporate customers such as Rio Tinto and Xstrata.

The JMS acquisition will boost earnings growth in 2008-09 from current estimates of about 16percent. It will also provide Watpac with an important presence in regions and industry sectors where it hasn't previously been represented.

Strip tease

Some investors choose to buy shares before qualifying for the dividend and sell after that period when the stock goes "ex-dividend". This strategy - known as dividend stripping - is more likely to work in a bullish market where momentum is such that share prices do not decline in line with the dividend payment.

All things being equal, dividend stripping should not work, as the earnings from the dividend are lost when the shares are sold. But in a bearish market, the consequences can be far worse as mob mentality exacerbates the degree of negative share price momentum.

Company          ASX code Share Price    Forecast 2008-09        Yield%
                        as at 1/8/08    dividend
Adcorp          AAU     $0.43           $0.05           11.6
Clarius Group   CND     $1.41           $0.18           12.8
Dexion          DEX     $1.00           $0.11           11.0
DWS Advanced    DWS     $0.92           $0.12           13.0
Peoplebank      PBA     $0.55           $0.08           14.2
Reverse Corp    REF     $1.79           $0.21           11.7
Watpac          WTP     $1.87           $0.24           13.1
1. 2008-09 dividend estimates are a median average of analysts??? forecasts. 2. Yield represents the percentage
return that would be achieved based on share prices and consensus dividend forecasts as at August 1, 2008.