Dirt-cheap stocks should entice cash-rich companies to make opportunistic acquisitions. And indeed, some are. In the last few days we've seen U.S. Bancorp (USB) snatching up the Downey Savings and Loan Association and PFF Bank & Trust in a deal backstopped by the FDIC; King Pharmaceutical (KG) intending to buy Alpharma (ALO) ; and Johnson & Johnson (JNJ) going for Omrix Biopharmaceuticals (OMRI) and Mentor (MNT), the latter a maker of breast implants that garnered a whopping 92% premium.

Those are welcome salves for wounded portfolios, but betting that some predator comes swooping in on your sickly prey is a tricky, risky proposition. If you're either holding on to a position or eyeing a new one solely with the hope of hitting the M&A jackpot, our advice is don't. Leave that type of speculation to the institutional investors and arbitrageurs. For everyone else, it's pretty much a sucker's bet.

Despite a recent flurry of deals, M&A activity is actually way off from a year ago. The value of announced deals in the current quarter has dropped more than 60% from last year's period, according to Capital IQ. (See chart.)

M&A Activity (Last 3 Years)

By Transaction Size
Status: Announced
Source: Capital IQ

That's the lowest level in more than a decade. Further, just because a deal is announced doesn't mean it will actually close, says Joe Clark, managing partner of Financial Enhancement Group. "The presumption in the past was that the regulators wouldn't let it go through," Clark says. "Now people are pulling deals off the table because they can't get financing."

Unless the cash is secured, betting on a deal getting done is just plain speculation, Clark says. The credit markets can stop spinning at any time. Meanwhile, the kind of currency plays that helped Belgium brewer InBev buy Anheuser-Busch (BUD) are shifting, as the dollar strengthens against the euro and pound.

Brett D'Arcy, director of investment and research at CBIZ Financial Solutions, says the current M&A activity is just part of the natural cleansing process. The strong buy the weak and, besides, it's cheaper to buy a good business than to build one from scratch. But that doesn't mean it's easy for the average investor to indentify profitable targets.

SmartMoney.com periodically screens for companies that look attractive as takeover targets, though we never try to predict actual takeovers. D'Arcy says regular folk need to do the same thing that the acquiring companies are doing. "Look for very good investment opportunities," he says. "These are companies that have a great deal of value, low price/earnings ratios, great market share and occupy some sort of specific niche."

Of course that's easier said than done. And then, of course, there is the other side of the deal: What if you're a shareholder in a cash-rich company that's doling out money for some potential dog?

"From an investor standpoint the question is, 'What's in it for me,'" says Mark Penske, chairman and chief executive of United Advisors. Cash-strapped investors who've seen their nest eggs plunge 30%, 40%, 50%, tend to be deaf to management's strategic promises of "accretion" and "synergy" and "creating shareholder value in 12 to 18 months."

"I would imagine that most individual investors are more short term than institutional investors or management is right now," Penske says. "They would want the reassurance of a quarterly dividend. Shareholders are saying I need to see something today."

There's certainly no shortage of companies with plenty of cash and little debt that could be throwing some healthy dividends back to needy shareholders rather than throwing it at deals that may or may not pan out -- and years from now, no less.

After all, dividends are cash, and cash is king right now. Unless you're an arb, you're more likely to get a holiday treat in dividends, not predatory stocking-stuffers.