Volatility is back -- with a vengeance. Even scarier, fear of an economic slowdown has routinely knocked the bottom out of the market. As a result, that volatility often feels as if it's the result of stocks all moving in the same direction -- down.

That rapid, downward movement makes it difficult for investors to fulfill the second half of the old investing saw "buy low, sell high." If you're not selling high, you're not freeing up cash to invest in the bargains that are becoming available in this generally falling market. Of course, if you happen to have piles of spare cash lying around, you could use that money to buy into this market. But who has that kind of liquidity?

Your always-active cash machine
That's the obvious reason why dividend-paying stocks are so powerful in a down market. Those dividends get paid regardless of what direction stocks move. Their routine cash infusions give you the ready source of capital you need to take advantage of today's discounted stock prices.

Less known, but equally as important, is that dividends themselves can give you a tremendous rate of return, with no stock gains required. So even if the market stays nasty for years, you can still get a decent return on your investment, thanks to the power of strong dividends. Sure, there's the little bit of cash you get today from those payments. The true power and returns from dividends, though, come from their tendencies to rise over time as the companies behind those dividends grow and prosper. For instance, check out the long-term dividend profile of these powerhouses:



Dividend Growth

Years of

W.W. Grainger (NYSE:GWW)




US Bancorp (NYSE:USB)




Wal-Mart (NYSE:WMT)




Johnson Controls (NYSE:JCI)




Family Dollar (NYSE:FDO)




National Penn Bancshares (NASDAQ:NPBC)




Aflac (NYSE:AFL)




Historical increases may include predecessor companies.


The power of the payout
Let's look at Johnson Controls in greater detail. Thirty-three years ago, at roughly the time it started raising its dividend, you could have bought its shares for a split-adjusted $0.27 a share. These days, the auto parts and building efficiency titan pays out $0.52 per share per year in dividends alone! Your yearly dividends today would be nearly twice your adjusted cost basis from your original purchase.

That's the phenomenal power that comes from dividends. In down markets, you can reinvest those dividends and accumulate more shares at cheaper prices. Or you can switch to an income strategy and take the cold, hard cash.

That's why, in markets like today's, investing in top-flight stocks with strong dividend histories -- and the real potential to keep those payments flowing -- is a sound strategy for making it through to brighter days. You can rest assured that even as the market flips, flops, and falls, your cash will keep rolling in.

At Motley Fool Income Investor, we've taken that lesson to heart. If you need a few ideas, you can view our two latest recommendations and our team's top five dividend stocks for new money with a 30-day free trial. There's no obligation to subscribe.

This article was originally published Feb. 20, 2008. It has been updated.

At the time of publication, Fool contributor Chuck Saletta did not own shares of any company mentioned in this article. US Bancorp is an Income Investor selection. Wal-Mart is a Motley Fool Inside Value pick. Aflac is a Motley Fool Stock Advisor recommendation. The Fool has a disclosure policy.