Especially when I'm decked out in suitably Foolish attire, people have a tendency to ask me what exactly I do for a living. So I tell them: "I have the world's best job. I get paid better than the boss and get raises for doing nothing. Mostly, though, I just sit back, get paid for other people's work, and let the cash roll in."

In all honesty, I can't quite give up my day job -- yet. That day is coming ever closer, though, as those dividends keep rolling in, increasing due to the underlying companies' growth, and get reinvested in solid businesses. Such is the tremendous power and beauty of dividend-focused investing.

Compound it!
The secret to investing successfully with dividends is really no secret at all -- it's a simple matter of compounding your returns over time. Dividends have a distinct advantage over the type of interest you earn at a savings account, though. Their edge comes from the fact that dividend payments have a tendency to grow. That growth can give you a significant boost over simple interest compounding alone.

After all, not only are you getting the benefit of earning future returns on your reinvested dividends, but your original shares are also throwing off increasing amounts of cash as well. That growth takes you leagues beyond mere interest compounding, and the gap only gets wider the longer you keep at it.

Get paid -- for real
Best of all, this tremendous compounding isn't some pie-in-the-sky fantasy. Instead, it's a very real reward that smart dividend-paying companies provide to their owners as they grow. As this chart shows, the total payment growth can be staggering even after just a few years:


Year 2000

Most Recent
12 Month Dividends


Simon Property Group (NYSE:SPG)




General Electric (NYSE:GE)




Talbots (NYSE:TLB)




Allstate (NYSE:ALL)




Bank of America (NYSE:BAC)




PepsiCo (NYSE:PEP)




Nordstrom (NYSE:JWN)




All data split-adjusted.

Remember -- that payment growth is just on the shares you hypothetically purchased at the beginning of 2000. Had you reinvested your dividends and made regular contributions along the way, the growth in your total dividend payments would have been much, much faster.

Dividends work their wonders for investors' portfolios over time. They can help turn an ordinary investor into one who is completely financially free and supported entirely by those payments.

If you're looking for help, our May issue of Motley Fool Income Investor spotlights two companies that pay yields greater than 5%. You can read all about them, and all our other dividend stock recommendations, with a free trial.

At the time of publication, Fool contributor Chuck Saletta owned shares of General Electric and Bank of America. Bank of America is an Income Investor recommendation. The Fool has a disclosure policy.