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The Simple Income Secret You Can't Afford To Ignore

I'll be honest... the key to earning a lasting (and growing) stream of income isn't rocket science. I'd venture that you already know about this trick. But it's my experience that while most investors know how to create lasting dividend income, few actually follow through to make it a reality.

There is a well-known way that you can stretch your investment -- even if it starts as a single share -- to where it can eventually more than provide for any needs you might have.

Unfortunately, it's my experience that not too many investors take advantage.

The Secret to Lasting Income

So how can you make your investment -- no matter how small initially -- turn into something that you can actually afford to live on?

Simple: Reinvest its dividends.

I know. It's not groundbreaking. But are you actually doing it?

Unless you absolutely need the cash now, reinvesting is invaluable.

Dividends are one of the most powerful wealth-building tools in an investor's arsenal because of the phenomenon of compounding. By reinvesting your dividend checks (instead of cashing them), you can buy more shares, which lead to even larger dividend checks. These larger checks can then be used to buy even more shares and so on.

In time, even a small stake in such stocks can grow into a tidy sum.

Reinvesting your dividends is a cinch. In fact, in many cases it can be done automatically through your online broker . And if they don't offer this, then just give them a call and they'll take care of it for you in a matter of seconds. Now here's the interesting part. Take a look at this chart to see what happens to a $20,000 investment earning a 7% annual yield that's reinvested.

As you can see, steady compounding yields amazing results over the long haul.

Thanks to the power of reinvested dividends and dividend growth, after 10 years your portfolio could be generating $5,299 in annual income --that's 278.5% more income when compared to an investor who doesn't reinvest.

This also means you're earning an effective yield of 26.5% based on your initial $20,000 investment after 10 years. Not bad.

It doesn't take a savvy investor like Warren Buffett to see how quickly your income stream can grow when you invest this way.

That's why I always recommend readers of my premium newsletter, The Daily Paycheck , to always reinvest dividends.

Now, I know it's tempting to take the cash -- and I know that many readers use regular dividends to fund their daily expenses. For some of you, waiting 10 or 20 years to grow your dividend payouts to these levels may not be realistic. That's okay. But I also know that a little patience will only lead to larger paychecks.

Also, keep in mind that there is a little trick you can use to make the entire process go a little faster. If you look at my chart above, you'll notice that the tallest column (representing the most income) is "cheating" a little.

You see, it represents your income if you reinvest... and your investment sees 5% annual dividend growth. I think that's reasonable for the kinds of securities I regularly select for my own Daily Paycheck portfolio -- and you can do the same.

That's the added bonus of owning solid dividend paying companies for the long haul -- more often than not management will reward shareholders with rising dividends over time. Investing -- and then reinvesting -- in stocks with rising dividend payments essentially puts your income growth into overdrive.

But if you have a portfolio full of stocks with steadily rising payments, it also means you're costing yourself even more if you don't reinvest your payments. Keep that in mind the next time you're checking up on your income portfolio.

If you haven't done so already, I encourage you to learn more about my income investing advisory, The Daily Paycheck . Soon, you could be on your way to building your own portfolio that uses the power of compounding to pay you regular (and growing) dividend paychecks. Many of my subscribers -- from all walks of life -- are making $300... $1,666... $3,000... even more than $4,000 per month by following The Daily Paycheck Retirement Plan . Learn more about how you can do the same thing by visiting this link .

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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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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Founded in 2001 by industry veterans, StreetAuthority is a financial research and publishing division of Investing Daily. Our mission is to help individual investors earn above-average profits by providing a source of independent, unbiased — and most of all, profitable — investing ideas. Unlike traditional publishers, StreetAuthority doesn’t simply regurgitate the latest stock market news. Instead, we provide in-depth research, plus specific investment ideas and immediate action to take based on the latest market events.

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