It started out as an experiment. It wound up being one of the greatest investment discoveries we've ever found.
A little more than five years ago, StreetAuthority co-founder Paul Tracy approached me with an idea. He wanted me to build a portfolio of dividend stocks that would pay out more than 30 dividend checks a month -- one for every day of the year. In order to show he was serious, he gave me $200,000 and a dedicated brokerage account to get started.
I must admit, I was a little skeptical at first. The idea seemed too good to be true. But in just over five years, 1,889 dividends and $79,578 worth of dividend income later, the results have been far better than anyone could have imagined.
Since I started my portfolio back in December 2009, my initial $200,000 investment has grown to more than $310,000, giving me a total return of more than 55% in a little more than five years. As of this month, the total dividends I've received amount to $79,578.
In its first full year of operation, my portfolio generated an average of $809 in dividends a month. But my portfolio's ability to generate income constantly grows. For instance in the last 12 months, I've collected $18,613 in dividends, amounting to $1,551 a month. And by the time you read this, these numbers are likely to have grown.
I call this method of investing "The Daily Paycheck Strategy." Simply put, by creating a portfolio of high-yielding dividend stocks that pay distributions regularly and have a history of raising their payouts, I've successfully built an income machine that pays me each and every day.
The best part is you can do the same.
Now, admittedly, there's another step to my strategy that has helped me accelerate my income stream these past few years, and I would be doing you a disservice if I didn't share it with you.
See, while it's tempting to take the cash that my portfolio is generating (who wouldn't want an extra $1,551 per month in the bank), I've found I can earn even more money by simply reinvesting my dividends. By using my dividends to purchase more shares, compounding takes over. As a result, my next payment will be larger, which then buys more shares, and so on.
Consider two income investors, both of whom start a Daily Paycheck portfolio with just $20,000. One of those investors chooses to take the cash and spend it as he pleases. The other decides he wants to reinvest his dividends.
Assuming they both earn a 7% yield, the chart below shows you the difference compounding can make. After 10 years the investor who reinvested his dividends is generating $2,754 in annual income -- nearly double the amount earned with no reinvestment.
And if the holdings happened to boost their dividends by just 5% annually -- something even giant blue-chip AT&T (NYSE: T) has been able to beat -- the portfolio earns 278.5% more income when compared to the investor who didn't reinvest. In fact, the investor who reinvests could be generating an effective yield of 26.5% based on his initial $20,000 investment.
If you have even a little bit more time on your investment horizon (or more money to invest, or additional dollars to invest each year), then the numbers only get better. And keep in mind that these are conservative estimates. They don't include one penny of capital appreciation.
Of course, I understand if you want your money now and you choose not to reinvest your dividends.
But by not reinvesting your dividends, you will sacrifice the benefit of compound growth. Even so, the average yield on my portfolio is still roughly 6.0% -- more than three times the average yield of the S&P 500 -- and many times more than the average savings account...
Before I started my premium advisory, The Daily Paycheck, I was anxious about generating a portfolio that could support me once I retired. I'm no longer anxious. Like my Daily Paycheck portfolio, my personal portfolio is generating more and more income every month. And I know that when retirement comes, I can just flick off the dividend reinvestment switch and start living off the income.
That's the power of my The Daily Paycheck strategy, and it's something I want every investor to experience.
Now that you know the idea behind my newsletter, I bet you are wondering how to build your own Daily Paycheck portfolio. You're not the only one. My colleague Matthew Michaels, a novice investor, wanted to build a nest egg for his two young daughters, but instead of using a traditional savings account, I urged him to try my strategy. To hear more about his story and learn how you can earn similar results for yourself, you can visit this link.