Some investors seem to think that they'll only earn good returns from small, obscure stocks. These poor souls often spend hours digging for great little stocks they might buy -- and hours more, later on, keeping a careful eye on the companies they own. I've done such digging myself, and it can indeed be very profitable. But many of us just don't have the time for that.

We don't want to take on stock picking as a hobby -- we just want to find better options than that long-languishing mutual fund clogging up our IRA. Fortunately, improving your returns is easier than you might think.

You don't need the 'next big thing' to do well
Everybody loves a "10-bagger," investing legend Peter Lynch's famous nickname for a stock that rises tenfold. Who hasn't dreamed of getting in on the ground floor of a great success story like Wal-Mart (NYSE: WMT) or McDonald's (NYSE: MCD)?

Finding a stock like McDonald's before the big investors on Wall Street do -- before its price starts to soar -- takes a great deal of time, energy, and guesswork. The rewards are undeniable, but so are the risks: What if your great little company goes bust?

A lot of "next big thing" seekers forget that companies like McDonald's and Wal-Mart are still great companies. True, their stock prices probably won't go soaring into the stratosphere anytime soon. But it's still possible to make an awful lot of money holding stocks like those over time.

How? With dividends.

The perfect easy IRA investment
A dividend is nothing more than an income stream paid to shareholders. You can reinvest that income stream to buy more shares, or just take it in cash. And with most online brokers, switching from one to the other is simple to do anytime you want. Like, when you retire.

Meanwhile, in what the experts call the "accumulation" phase of your retirement savings, you'll want to reinvest those dividends to drive your portfolio's growth. And that kind of growth -- even with the kinds of stocks you don't need to look under rocks to find -- can be quite surprising over time. Look at what $1,000 invested in each of these big-name companies 25 years ago would be worth now:


CAPS Rating
(out of 5)

Current Dividend Yield

Value of $1,000 Investment in 1985

Johnson & Johnson (NYSE: JNJ)








PepsiCo (NYSE: PEP)




Procter & Gamble (NYSE: PG)




Walgreen (NYSE: WAG)








ExxonMobil (NYSE: XOM)




Source: Yahoo! Finance, Motley Fool CAPS.
Hypothetical $1,000 investment from 4/8/1985 through market close on 4/7/2010 includes reinvestment of dividends.
^Starting date 7/1/1985.

Ponder that for a bit. We took $7,000 and split it between seven big-name stocks that won't keep you awake at night -- and 25 years later, we had more than $245,000. For comparison, if you'd stuck that $7,000 into a mutual fund returning an average 8% a year -- better than a lot of funds have done over the last decade -- you'd have a bit less than $48,000 now.

The secret to that growth, of course, is the dividends -- sustained, growing dividends, reinvested to buy more stock. And there's a secret to the companies I chose for this article: All of the stocks I listed have increased their annual dividend payouts for at least 25 consecutive years.

Through wars and recessions, market crashes and bursting bubbles, they not only kept paying shareholders, but also gave them a raise. Every year. That's an awfully good deal -- and the long-term results speak for themselves.

Here's one other advantage to holding dividend stocks, as retirement guru Robert Brokamp has mentioned in the Fool's Rule Your Retirement newsletter. Once you've retired, you can simply start taking the dividends as income. You won't even have to sell any of your holdings. That's an ideal situation in my book.

The upshot
If you want an easy-to-make, easy-to-find investment with a high chance of success, dependable dividend stocks are excellent choices. I think they represent one of the best retirement-investing strategies -- especially for people who don't want to make a hobby out of stock picking.

Looking for more stocks for that IRA? Rex Moore can tell you the best stocks to buy now.

If you'd like to learn even more about putting dividends to work in your IRA, take a minute to check out the new issue of Rule Your Retirement. It includes a great article on choosing dividend stocks for the next decade. A free 30-day guest pass gives you complete access, with no obligation to purchase -- just click here to get started.

Fool contributor John Rosevear owns a bunch of dividend stocks, but has no position in the companies mentioned. Wal-Mart Stores is a Motley Fool Inside Value choice. Johnson & Johnson, PepsiCo, and Procter & Gamble are Motley Fool Income Investor recommendations. Motley Fool Options has recommended buying calls on Johnson & Johnson and a diagonal call position on PepsiCo. The Fool owns shares of Procter & Gamble. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.