I’ve found what really works when it comes to income investing. It’s a secret that could help you earn returns nearly triple most regular income stocks.

In 2010, with $200,000 in actual cash fronted by StreetAuthority, I was given the go-ahead to build a real-money portfolio using the Daily Paycheck strategy.
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The strategy is straightforward. I select the best income investments on the market, reinvest every cent of dividends I receive, and then watch my paychecks grow.

It’s a simple way to invest, and many investors have probably heard about it before. But until now, most have only seen this sort of strategy backtested — not put into practice in real life.

The good news is that while we all know being paid dividends regularly — and reinvesting those payments — is “supposed” to work, the actual results have been much more exciting than even I expected.

For instance, I’m now averaging more than $1,592 per month in dividends and have earned more than $87,000 in total dividends.

But this strategy has also uncovered something surprising that could have a big impact on how you invest.

My portfolio holdings are separated into three different groups. Securities in the High-Yield Opportunities are the highest yielders. These investments pay more than 10% on average. The Fast Dividend Growers are companies increasing their dividend payments quickly. And the Steady Income Generators are the holdings that can simply be counted on to pay stable dividends year after year without much change.

What’s surprising is which of these groups has performed the best. The Fast-Dividend Growers have the lowest average yield of the three. These holdings pay an average yield of 4.6%. But this group has an average total return of 73.5%. Compare that to an average total return of 30.5% for all the portfolio holdings.

In other words, the Fast Dividend Growers have returned more than twice as much on average than the portfolio as a whole… despite paying yields lower than most of the other holdings.

Take Altria Group (NYSE: MO), one of the holdings in my Fast Dividend Growers group. The stock pays a 3.7% yield — solid, but not eye-popping. But since mid-2008 the company has raised the quarterly dividend from $0.29 per share to $0.52. That’s an increase of 79% — and much of that happened during the most turbulent economy in generations.

With that sort of stability, it shouldn’t be a surprise the stock returned 293% during this period, compared with a gain of 79% in the S&P 500 (dividends included).
 

So what can you take away from this finding?

First and foremost, it proves what you’ve always heard. Investing in dividend-paying securities — especially those paying increasing dividends — and reinvesting those dividends can be a very lucrative strategy, especially in a tricky market.

But more than that, it proves that often it isn’t the highest-yielding dividend payers that give you the highest return. High yields are tempting, especially if you’re after current income. However, more often than not, companies able to consistently increase their dividends turn out to be the better investments.

P.S. — My strategy is paying off — in the form of 410 dividend paychecks last year — and it can for you, too. Thousands of investors are taking advantage of my Daily Paycheck Retirement System to collect hundreds, even thousands of dollars a month in extra income — simply by investing in the kinds of safe, reliable dividend payers I recommend each month in my premium newsletter, The Daily Paycheck… To learn how my system could deliver regular dividend paychecks to you each month, simply follow this link.