We've all lost money on our investments. It happens to the best of us. The ups and downs of the stock market are the price we pay to take part in the greatest wealth-building enterprise the world has known.

While we can't eliminate market volatility, we can reduce its effect on our financial well-being. To be successful, you'll need a long-term perspective and a focus on what really counts -- the underlying strength of the businesses you own.

A strategy that works
One strategy can help you build wealth over time regardless of what direction the stock market moves. To make it work, all you need to do is regularly invest in solid companies that pay decent dividends and reinvest those dividends.

That's it. There's no magic; no voodoo. As you let the power of compounding work for you, your portfolio will gain the strength it needs to ride out the market's rough patches.

The steamroller effect
To illustrate, imagine a company that's trading at $100 per share and pays an annual $3.00 dividend (a 3% initial yield). Let's suppose that stock drops 5% per year for the next 30 years, yet maintains its $3 dividend. Now imagine that you:

  • Invest an additional $1,000 in the company at the beginning of each year.
  • Reinvest the dividends that are thrown off along with your new $1,000.

This chart shows how much you'll have at various points along the way:


Total Shares

Dividends Received

End of Year Value

































After 16 years, in spite of the fact that the stock has been dropping all along the way, you've got more money than you invested out of pocket. Combine the power of the continued investments with the steady drip from the reinvested dividends, and you will simply overwhelm the slow and steady decline in the stock. Like a steamroller, the power of those reinvested dividends is almost unstoppable.

At the end of the 30 year drop, you'll end up with approximately $22,000 more than you invested despite the fact that your stock never went up. This is an utterly amazing testament to the long-term power of dividends.

When things work right
If you can make money with a cruddy stock like the one from our example thanks to dividends, imagine what you can do with a company with a business that's improving and that raises its dividends over time. It's with this compounding power and long-term perspective in mind that my friend and colleague Mathew Emmert runs Motley Fool Income Investor. His selection of U.S. Bancorp (NYSE:USB) is a prime example of what he seeks out in an investment. When he picked it in June 2004, it paid $0.24 a share in quarterly dividends, a 3.4% annual yield at the time. Since then, its shares have gone up, and so has its dividend -- twice. In fact, its former $0.24 quarterly payment is now $0.33. That's a 37.5% increase in about two years.

Your chances of doing well increase dramatically when you own a solid company with a growing dividend, regularly invest, and reinvest your dividends.

Power up your steamroller
If you'd like your investments to gain unstoppable momentum, your picks need to have two key characteristics:

  • A decent and sustainable current yield
  • Management with a willingness to raise payouts

The stronger a company is in these areas, the stronger your portfolio. A sustainable current dividend will help your overall portfolio sustain itself even when the market knocks down the value of your stocks. Moreover, a propensity to hike payouts in line with business improvements makes it easier and faster for your portfolio to generate steamroller-style income of its own.

The list below shows a half-dozen companies that fit those criteria. Each of these firms yields at least 3% based on their most recent dividend. Each also has raised its dividend at least 10% since the equivalent payment a year ago.


Recent Yield

Comparable Y/Y Dividend Increase

Chevron (NYSE:CVX)



Equity Inns (NYSE:ENN)



Freddie Mac (NYSE:FRE)



General Growth Properties (NYSE:GGP)



Mattel (NYSE:MAT)



Rayonier (NYSE:RYN)



While these may not be the most exciting names in the stock market, they have shown themselves willing and able to pay their owners -- the shareholders -- well.

The Foolish bottom line
Your steamroller gets stronger the more you regularly invest in companies with proven track records of both paying their shareholders well and raising those payments. Tend to your investing this way for long enough, and one day you'll find your portfolio has grown strong enough to tend to you. At that point, there's simply no stopping you.

So if you're ready for your investments to earn you money, even if the market heads south, click here to learn more about Income Investor.

At the time of publication, Fool contributor Chuck Saletta owned shares in Mattel and his wife owned shares in General Growth Properties. U.S. Bancorp and Equity Inns are Income Investor picks. Mattel is an Inside Value recommendation. The Motley Fool has a steamroller of a disclosure policy.