What is the dividend snowball?
The dividend snowball is compounding applied to income investing. Your shares pay dividends; you reinvest those dividends into more shares; the new shares pay dividends of their own. On top of that, healthy dividend companies raise their payouts most years — so you own more shares and each share pays more. Those two forces multiplying each other is what makes long dividend timelines look unreasonably good, and why the strategy is named after a snowball rolling downhill.
Early on, the snowball is small and progress feels slow — the first years are dominated by your contributions. The curve in the chart above bends upward later, when reinvested income starts doing more of the lifting than new money does. That crossover is the whole game: the calculator's year-by-year table shows yield on cost climbing as the dividends you collect grow against the money you actually put in.
How this calculator models the snowball
Each month, the simulation pays one-twelfth of the current annual yield, optionally reinvests it, applies one month of share-price growth, then adds your contribution. Dividend growth and price growth are compounded separately, so the effective yield drifts realistically over time instead of staying frozen. All results are pre-tax, nominal dollars.
Choosing sensible inputs
- Starting yield: broad dividend ETFs yield roughly 3–4%; the S&P 500 sits near 1.5%; high-yield sectors (REITs, BDCs) pay more but usually grow slower.
- Dividend growth: 5–8% per year matches long dividend-growth track records. High yield and high growth rarely come together — pick a trade-off, not a fantasy.
- Price growth: often near dividend growth for mature payers; using a slightly lower number is conservative.
A useful exercise: run a high-yield/low-growth profile (say 6% yield, 2% growth) against a low-yield/high-growth one (2% yield, 10% growth) over your actual time horizon. Short horizons favor yield today; long horizons usually hand the win to growth.