Amid the drumbeat of weak U.S. economic data and continuing European debt worries, global stock markets sold off in the week of Aug.1. Then came the U.S. credit downgrade from Standard & Poor’s.

The U.S. stock market dropped between 4-5% on Thursday, Aug. 4 alone. They continued to drop the following week, before dramatically bouncing back on Tuesday, Aug. 9.

Following Thursday’s fall, I told subscribers of my premium High-Yield Investing advisory that in all likelihood, the worst wasn’t over yet. “I could see the S&P 500 retreating perhaps another 70 to 100 points from here to the 1150 or 1120 level,” I wrote.

That’s where we hit during the sell-off on Monday, Aug. 8. With the rebound on Tuesday, this level may end up being the lowest the S&P will hit; although it is too early to say for sure. Still, even while the market is bottoming out, at the very least we’re going to continue to see volatile — and sometimes frustrating — trading.

That’s are the bad news.

The good news is that I believe dividend-paying stocks are one of the best places to shop in a downturn. Don’t get me wrong. Dividend payers aren’t immune to downturns. And they aren’t as stable as cash in a savings account.

But the last time I looked, cash won’t pay you 6%… 8%… even 10% or more per year.

During times like these, high-yielding income payers with solid fundamentals and positive long-term outlooks become even more attractive. As the saying goes, you’ll see investors “throw the baby out with the bathwater.” As the price of these securities falls, yields rise, making them appealing to bargain-hunters.

In fact, in the downturn of 2008-09, you were able to pick up some unbelievable high-yield bargains. Wells Fargo Capital XIV, 8.625% Trust Preferred Shares (NYSE: WCO) traded as low as $14.18 at the height of the crisis, despite having a face value of $25 per note. If you bought at that level, you locked in a yield of 15.2% on your money. Today the shares trade above their $25 face value.

In my seven years at the helm of High-Yield Investing, I have witnessed a similar pattern numerous times. After the market bottoms, many dividend stocks in my portfolio rebound with a vengeance. If history is any gauge, this pattern will likely repeat itself.

Now, I am waiting for confirmation of a bottom in the overall market before I commit too much capital… but I’m seeing yields rise across the board.

And as for the securities I already hold?

Action to Take–> I am a buy-and-hold investor. Unless there is clear evidence that fundamentals have changed and the dividend is endangered, I see no reason at this time to succumb to negative market sentiment. That has certainly proved to be good advice in light of Tuesday’s rally.

P.S. — If you’re an income investor, why would you buy a stock yielding 2% when you can find one paying 26% right here? Watch this presentation for more