A Quick Example
If you earn 4% interest on a simple savings account balance of $10,000, then you will have $10,400 in that account at the end of the first year. If you earn another 4% interest on that amount the following year, you'll then have $10,816. In 15 years, you would have accumulated $18,009, increasing your investment by more than +80%.

But compounding works for more than just bank customers. Stockholders can take advantage of it, too, through dividend reinvestment plans (DRIPs).

What Are DRIPs?
Many publicly traded U.S. corporations offer Dividend Reinvestment Plans (DRIPs) as a way for their shareholders to acquire additional shares at a very low cost. DRIP plans enable investors to automatically take any dividends paid by a particular firm and invest those funds back into the company's stock, often at a discounted price.  In addition, most DRIP programs charge either very low transaction fees, or in some cases no fees at all.

The Power of Dividend Compounding
Over the long run, there's no better way to grow wealthy in the investment markets than to systematically invest in high-quality stocks and funds, hold on for the long haul . . . and reinvest your dividends.  

That's why Dividend Reinvestment Plans, or "DRIPs," are such powerful wealth-builders. By plowing your dividends back into more shares, DRIPs make it easy to harness the miraculous power of compounding. The beauty of compounding is that any little smidgen of money you can put to work now -- no matter how small -- can have an extraordinary effect on your wealth down the road.

For example, let's say you're able to stash away $5,000 per year. Although that might not seem like a tremendous amount of money, thanks to the magic of compounded dividends, a $5,000 annual investment can turn into nearly $5.0 million over time. The chart below shows what would happen if you invested $5,000 per year for 30 years in a security that pays an 18.3% annual dividend.

Assuming a $100 share price, in this example you'd start out at year #1 with an investment of just 50 shares ($5,000 divided by $100). But thanks to the magic of compounded dividends, by the end of this 30-year period you'd have a nice nest egg of 49,736 shares in your brokerage account, and those shares would be worth nearly $5.0 million. Even better, at year #31 those 49,736 shares would be throwing off more than $910,000 in cash dividends each and every year -- that's almost $1 million in annual dividends alone!

Best of all, this chart assumes the security's underlying share price doesn't budge over the entire 30-year period -- that it doesn't even gain one single cent. The returns shown above display gains from dividends only. If this security's share price increases in value at just +5% per year, then in this example you'd end up with 39,635 shares and over $17 million in your brokerage account.

Sound like an unachievable "pie in the sky" example?  It's not.

In fact, in a recent issue of her High-Yield Investing newsletter, editor Carla Pasternak profiled a diversified fund that offers an 18.3% dividend yield, plus a DRIP plan to help you automatically reinvest your dividend checks, making gains like this possible over the long haul.

How to Invest in DRIPs
So, as you can see, DRIPs can help income investors earn incredible returns. However, information on which companies offer DRIP plans is sometimes hard to come by, in part because the Securities and Exchange Commission (SEC) does not allow companies to actively promote their DRIPs. Also, DRIPs don't generate big commissions for brokers or fund managers, so there is little incentive for them to promote them.

That's where industry veteran Carla Pasternak can help. In each issue of her monthly High-Yield Investing newsletter, Carla offers insight and advice about specific DRIPs. She also provides a detailed list of securities that are getting ready to deliver abnormally large dividend payments in the coming weeks. For example, Carla recently spotted an unusually generous firm just days before it paid a special dividend of $15.00 per share!

In addition to DRIP information, Carla also profiles a host of other income-oriented investments, including REITs, MLPs, Canadian Trusts, and more. If earning unmatched returns though income investing sounds like your cup of tea, then visit this link to learn more about High-Yield Investing.