I will prove it to you. And I will also show you how to make 10-20 times your money in addition to 20% – 30% annual yields, while owning a portfolio that allows you to sleep soundly at night.

Many people assume that the majority of the stock market’s return over time has come from capital gains – growth companies that start out small and turn into giants. But this is only small fraction of the returns produced by the market. According to Wharton Professor, Dr. Jeremy Siegel, who performed a study of market returns from 1871-2003, capital gains account for only 3% of the market’s growth during that period.

So where does the other 97% of the growth come from? Reinvested dividends.

The authors of the book, Triumph of the Optimists: 101 Years of Global Investment Returns, reached the same conclusion. In their study of equity returns from 1900 to 2000, they found that a portfolio with dividends reinvested performed nearly 85 times better than the same portfolio relying on capital gains alone. 85 times better!

There is simply no greater way to compound your wealth in the market than to buy dividend-paying companies and reinvest those dividends. Each quarter, your dividends buy more shares, adding to the total on which your next dividend payment is calculated.

But this is still not the biggest secret to stock market wealth. It is not enough to just invest in any dividend paying companies. The key is to invest in companies that consistently RAISE their dividends year after year. Let me show you just how powerful that can be…

Assume you purchase 100 shares of ABC Corp at $10 a share. We’ll also assume the stock does not appreciate at all while you own it. But the dividend payments increase by 10% each year.

If ABC yields 5% when you purchase the shares, the dividend you receive the first year will be $50 (automatically reinvested in more shares, of course). After just 10 years of dividend growth and reinvesting your proceeds, your annual yield would be 26% on your original investment!

And there are plenty of companies that have consistently raised their dividends by a substantial amount each year. Proctor & Gamble, for example, has raised its dividend for more than 50 years consecutively. And over the last 10 years, the dividend has increased an average 11% a year.

When a company performs this well, it is highly likely you will see capital growth, in addition to the ever-increasing dividends. After all, there is no greater confirmation of financial strength than the ability to pay a rising dividend year after year. And it is this combination capital growth and reinvested rising dividends that can produce astronomical results. Consider just a few examples…

•    If you had purchased just 200 shares of Pepsi in 1980 it would have cost you $4,900. Today, including dividends, those shares would be worth $399,938 and would generate $13,569 a year in dividends.

•    If you had invested in 200 shares of Philip Morris at the same time, your initial outlay would have been $6,926. Today, your shares would be worth $1,239,754

•    200 shares of Johnson & Johnson would have cost you $15,074 in 1980. Today, those shares would be worth $983,578, generating a $34,760 annual dividend.

Not bad for safe “boring” companies!

And in case you think there are not many companies left that are raising their dividends, think again. Despite the financial crisis, more than 80 companies in the S&P 500 raised their dividends between the last quarter of 2008 and the second quarter of 2009. While that is a decrease from last year, it is a good thing if you’re investing today. It means there is a smaller universe of these world-leading companies to choose from.

Three of the best include Wal-Mart, Coca-Cola and Proctor & Gamble. While none of these stocks yield more than 4% currently, all three have raised their dividends substantially for more than 30 consecutive years. This is how Warren Buffett’s holdings in Coca-Cola (purchased in 1988) now pay an annual yield of more than 30% on Berkshire’s original investment.

If your goal is to accumulate wealth in the stock market, the best way to do it (dare I say, the only way) is to invest the majority of your portfolio in companies that have a long history of paying dividends that rise every year. Reinvest those dividends and be patient. And if you can buy these companies recession-discounted prices, then all the better.

Source: How to Make 20 Times Your Money Buying the World’s Safest Stocks