AS STOCK PRICES FALL, THE YIELD ALSO RISES

As much as I hate to see the balances in my investment accounts drop when stock prices decline, I always try to keep in mind that yields on dividend paying stocks go up as their prices fall. Some say this is only a temporary slow down and the market will take off again soon, while others are predicting another 50% drop in stocks. Either way, it could present level headed dividend investors with great opportunities to pick up bargain priced shares and increase their overall dividend yields.

Say for example you have a $20 stock paying a dividend of $1 per year, that works out to a 5% return on your investment. Not bad really, but if that stock drops in price by 50%, or to $10 per share and still maintains the same $1 dividend, then the dividend yield jumps to 10%! This actually happened to one of my stocks during the last downturn and I was quick to take advantage of the lower stock price to double the number of shares I owned. The greatest thing about that is, now that the share price has returned to near it's former high, I'm still earning a 10% return on the shares I purchased at the lower price, not to mention a sizable unrealized capital gain.

This time around I'm in a lot better position to take advantage of another downturn than I was in 2007 and 2008. While my income is lower, I do have a job with a steady income. My personal debt is nearly all paid off and I've managed to build up a cash surplus. So when opportunities present themselves, I'll be able to move quickly a pick up some terrific deals on solid dividend stocks for both my investment accounts.

For my most recent moves, I'm adding RAI to my regular stock account and JNJ to my IRA account. Reynolds American Inc (RAI) carries a dividend of $3.60 per share which represents a yield of 6.74% on their closing share price of $53.40. Johnson & Johnson (JNJ) currently pays a dividend of $2.16 per share, for a yield of 3.38%. Both companies have more than sufficient earnings to maintain their current dividend payouts and should make great additions to my investment accounts going forward. I'll definitely be looking to add additional shares of both stocks should their share prices drop with the rest of the stock market.