Editor’s Note: What’s the single best way to build your nest egg?

According to Marc Lichtenfeld, chief income strategist of our affiliate The Oxford Club, it’s to buy stocks he calls “perpetual dividend raisers.”

In today’s Weekend Edition, Marc reveals how you identify this special class of stocks.

And how you can use them to steadily build wealth over time.

How the Most Powerful Force in the Universe Can Make You Rich 

By Marc Lichtenfeld, Chief Income Strategist, The Oxford Club

Albert Einstein called it, “the most powerful force in the universe.” He wasn’t talking about a black hole, the big bang or anything that had to do with physics. Einstein was describing the power of compounding.

The idea is simple: $100 earning 10% annual interest is worth $110 a year later. The next year, instead of earning $10 in interest, the $110 earns $11. The following year, $12.10. And so on.

Those numbers pile up and after several years create a much larger pile of money than the investor started out with. For example, $100 earning 10% interest compounded is worth $259.37 after 10 years – a gain of 159%.

Perpetual Dividend Raisers

The best way to tap into the power of compounding is by investing in what I call “perpetual dividend raisers” – stocks that raise their dividends every year.

There are some companies that have boosted their dividends every year for decades.

For example, electric utility Consolidated Edison (NYSE:ED) has raised its dividend every year for 41 years.

The last time Con Ed didn’t raise the dividend The Godfather won the Oscar for Best Picture, “Killing Me Softly with His Song” by Roberta Flack was No. 1 in the charts and Billie Jean King won Wimbledon. That was a long time ago.

When you automatically reinvest your dividends back into stock you own, your compounding goes into overdrive. The stock pays a dividend, which buys more stock, which pays more dividends, which buys more stock…

And when the dividend goes up every year, it allows the investor to accumulate even more shares.

It’s the easiest way to build wealth in the markets.

For example, in the past 10 years, an investor who put $10,000 into the S&P 500 (SPY) and reinvested dividends would now have $27,143. Not bad at all.

But an investor could have done even better by investing and reinvesting his dividends in:

And boring old diapers and toilet paper company Kimberly Clark (NYSE:KMB) would be worth $110,066.

The key is to invest in companies with solid starting yields that raise their dividend by a meaningful amount every year – no matter what the market is doing.

Keep in mind: These were all companies that raised their dividend in 2008 and 2009, even as the economy and markets were cratering.

And It’s Safe Too…

Although perpetual dividend raisers are stocks – and there is of course market risk – dividend payers consistently outperform the markets over the long term.

And according to finance professors Kathleen Fuller and Michael Goldstein of Babson College, during falling markets dividend payers outperform non-dividend payers by one to two percentage points per month.

Since 1990, the S&P 500 has returned an average of 127% over rolling 10-year periods. But stocks that have raised their dividends for 25 years in a row or more returned an average of 183% during the same period.

Also, over rolling 10-year periods, the group that raised its dividends for 25 years or more has never lost money, whereas the S&P 500 recorded three separate losses.

The key is to be patient and let compounding work its magic.

If you own $10,000 worth of stock that pays a 4% yield and raises its dividend 10% per year, you’ll have $11,213 after the first year if the stock goes up by the historical market average.

Nice. But nothing extraordinary.

After five years your nest egg is worth $17,873.

Now, here’s where it starts to get exciting. In 10 years your original investment has more than tripled to $32,627. Five years later you’re sitting on $60,960. And five years after that, you’ve got $116,855 – more than 11 times your money from a onetime investment in a conservative stock.

Imagine how much money you’d have if you invested in some perpetual dividend raisers, reinvested your dividends and didn’t touch them for years.

The great thing is that if you need the income at any point, you just stop reinvesting the dividends and get paid in cash. In our above example, after five years, you get paid $699 per year. In 10 years, the dividend payments rise to $1,405. In 15 years, you receive $2,891. And in 20 years, you’re getting paid $6,100 per year.

At that point, you recoup your entire original investment from dividend payments in less than two years. And the income should continue to rise as the company increases the dividend year after year.

Reinvesting dividends into perpetual dividend raisers is hands down the best, and easiest, way I know of to build a big nest egg and generate large amounts of income.