Suppose that, 30 years ago, you had invested $1,000 in Altria, formerly Philip Morris, maker of the even-then-famous Marlboro brand of cigarettes.

When you invested that grand, you would have had just 29 shares at the price of $34.50. Hardly enough to get on with, right? Well today, through splits and spinoffs, you would have:

  • 700 shares of Altria.
  • Nearly 500 shares of Kraft.
  • 700 shares of Philip Morris International.

Total value? Just shy of $62,600. Better yet, you'd have earned a total of $31,000 in dividends as a result of that original $1,000 investment.

What if you had reinvested those dividends? Instead of nearly 1,900 shares across three companies worth a total of $62,600, you'd have more than 7,200 shares of three companies worth a whopping $242,600. That includes more than $85,000 in dividend payments -- nearly three times the income received by those who chose not to reinvest dividends.

But here's the really sweet part. Today, without having to sell a single share, you'd be receiving more than $12,000 in income -- every year.

Now that's what I call a wealth machine.

Yeah, right!
All right, I know what you're thinking. "That is such a blatant example of data mining! Nobody did that!" Well, as it happens, my grandmother did. Not with Altria, but with ExxonMobil.

She bought shares of Exxon back in the early 1960s and reinvested her dividends. By the time my grandfather was ready to retire some 30 years later, they were able to buy two lots of land and build their retirement home on one of them -- paying cash on the barrelhead just from that one investment.

In other words, Altria is by no means the only example in which reinvesting dividends could have made you rich over the years.

Want further proof?

Professor Jeremy Siegel of the Wharton School of Business has shown that the 100 highest-yielding stocks of the S&P 500 outperformed the overall index by three percentage points per year. Now a three-point advantage may not sound like much, but over 10 years, that meant more than $900 more received for every $1,000 invested.

Wealth machines
Now before you can say, "Where am I going to find companies that even come close to what happened way back then?" let's look at what makes a "wealth machine."

I call Altria and ExxonMobil wealth machines not because they were great companies (although they were) or because they paid a dividend -- after all, not every dividend payer can be called a wealth machine -- but because they consistently raised their dividends. And they were able to do that because they performed consistently well.

What may surprise you is that research by Robert Arnott of Research Affiliates and Clifford Asness of AQR Capital Management has shown that companies with higher dividend payout ratios -- the amount of the dividend compared to net income -- tend to have higher real earnings growth in the following 10-year period. In other words, they're better-run companies. And we already know what earnings growth means for a company as far as price goes.

So that's what to look for: companies that consistently raise dividends over time. Now let's look at some numbers.

Would you believe me if I told you that nearly 20% of the companies currently in the S&P 500 have increased their dividend by 10% or more per year over the past 10 years? It's true. In fact, 91 companies have done so.

That list includes such familiar names as Home Depot (NYSE: HD), at 23.1% per year over the past decade, and Boeing (NYSE: BA), growing dividends at a slower, but still healthy, 11.6% per year. You expect companies like those two to pay dividends. What surprised me was that there were two tech companies well up the list: Intel (Nasdaq: INTC) has grown its annual dividend by 22.6% per year and Texas Instruments (NYSE: TXN) has kept up an 18.4% pace. So much for the belief that tech doesn't pay dividends or grow them.

Here are three other wealth machines -- and what you would have today if you had invested in them 10 years ago, reinvesting all dividends.


Average Annual
Dividend Increase

Result of Investing $1,000

CAGR, Including Dividends

Union Pacific (NYSE: UNP)




UnitedHealth Group (NYSE: UNH)




Valero Energy (NYSE: VLO)




Source: Capital IQ, a division of Standard & Poor's.
CAGR = compounded annual growth rate.

A 15.9%-per-year return comes close to rivaling Warren Buffett's performance -- and you don't even have to be as smart as he is. All you have to be is smart enough to invest in well-run companies with a history of paying dividends and increasing those payments over time.

To help you find those companies, we have the Motley Fool Income Investor service. It brings you a new idea every month, one with a healthy, sustainable dividend. Right now, we're offering a free, 30-day trial membership, which includes access to the stocks recommended now, along with all the research behind the recommendations. You also get access to the six Buy First stocks to start or expand the wealth machine part of your portfolio. To have all this at your fingertips, just click here.

This article was originally published March 27, 2010. It has been updated.

Jim Mueller owns shares of Philip Morris International, but no other company mentioned. Home Depot, Intel, and UnitedHealth Group are Motley Fool Inside Value selections. UnitedHealth Group is also a Stock Advisor recommendation and the Fool owns shares. Philip Morris is a Global Gains pick. The Fool has created a covered strangle position on Intel. The Motley Fool is about investors writing for investors and making everybody richer.