How to Earn 13.0% Yields From Stocks Paying 6.2%

The story was picked up by the major news sources last year as a "cute" human interest feature. You might have seen the headlines like "How a Secretary Made and Gave Away $7 Million."

But for me, this wasn't some light news piece. This was a story that resonated deeply with me.

I didn't know Grace Groner, from Lake Forest, Ill. From the stories, she was a woman who lived frugally. Her passing was of interest because her threeshares of Abbott Laboratories ( ABT ) grew into more than 100,000shares through decades ofdividend reinvestment.In total, her estate became worth roughly $7 million .

And while I didn't know Grace Groner, I did know Lillian Calistri.

The last time I saw Aunt Lillian was in 1990. I remember that a nephew had the misfortune of addressing her as "Lillian." She promptly looked us all in the eye and said, "You will continue to call me Aunt Lillian." We were all more than 25 years old at the time, but in Lillian's world, adulthood was no excuse for bad manners.

Aunt Lillian taught homeeconomics at Charleroi High School in Pennsylvania. After she retired in the 1950s, she moved to Tucson, Ariz. I remember thinking it was nice that Lillian had been able to live comfortably in her golden years -- aided by a teacher's retirement and a nest egg from the 1952 sale of the family's ice cream business.

Here's the kicker: When Lillian died in 1993, her estate was worth north of $5 million. Her broker was the only one who wasn't shocked. "They should have that kind of discipline on Wall Street," he said. Dividend reinvestment? You bet.

But there's something else to this story. And it's something that can help you earn larger dividends soon -- helpful if you don't have a lifetime to invest as Aunt Lillian and Grace did.

They may not have realized it at the time, but the women in these stories chose their investments wisely.

Abbott Laboratories paid its first dividend in 1983. Adjusted for stock splits, the pharmaceutical company initially paid a dividend of $0.01562 per share, representing a yield of just 1.1%. But during Ms. Groner's lifetime, Abbott consistently grew its dividend. Its latest dividend was $0.44 a share -- 2,717% greater than the original payout.

One of Aunt Lillian's investments was International Business Machines ( IBM ) . IBM dished out its first dividend in 1962. Since then, it has grown its dividend by 64,900%.

Neither Abbott nor IBM had a particularly juicy yield at the time these women bought their shares . But they had something equally powerful: a corporate culture dedicated to dividend growth. Throughout Grace and Lillian's lifetime, these companies never cut their dividend. In good economic times and challenging times, these companies found a way to deliver ever-increasing income to their shareholders.

And those extra dividends add up a lot quicker than you'd think.

In my Daily Paycheck portfolio, I already have two lifetime dividend achievers. AT&T ( T ) and Altria ( MO ) .

If you put $5,000 into AT&T five years ago, you'd have earned a 4.7% yield at the time. That's $242 a year. But today, that $5,000 investment would be paying $405 a year if you simply reinvested your dividends. That's an 8.1% yield on your original investment.

Altria is an even better story. Right now the shares pay a solid 6.2%. It's nothing to sneeze at, but thanks to the company's commitment to dividend growth, $5,000 invested just five years ago -- plus reinvested dividends -- is now earning 13.0%, or about $650 every year.

Action to Take--> It's doubtful most of us will have decades and decades to invest like Grace Groner or Aunt Lillian. But that doesn't mean we can't see our dividends grow enormously in a span of just a few short years by reinvesting dividends. Stocks like AT&T and Altria are perfectly capable of doing this again, but you should also look for other securities that could deliver a big paycheck down the road.

-- Amy Calistri

P.S. -- I mentioned above that AT&T and Altria are both in my Daily Paycheck portfolio. But it takes a few more ideas to build a portfolio that pays you daily...

So far the daily strategy has been working like a charm. In January I earned $1,663.30 from 25 dividend payments. To learn how to get started creating your own Daily Paycheck portfolio, I invite you to read this memo.

Disclosure: Neither Amy Calistri nor StreetAuthority, LLC hold positions in any securities mentioned in this article.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

© Copyright 2001-2010 StreetAuthority, LLC. All Rights Reserved.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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