Dividend Snowball Calculator
I built this tool to help you visualize the most exciting part of dividend investing: the exponential growth of your passive income stream.
Dividend Snowball Calculator
Watch your passive income stream grow year after year.
Dividend Snowball Calculator in 3 Simple Steps
I've designed this process to show you exactly how the snowball effect works. Here is how to use the calculator.
1. Start Small
Enter your initial investment. Remember, every snowball starts with a single handful of snow. Even $1,000 is enough to start the process.
2. Add Fuel
Input your annual contributions and dividend growth rate. This is the "gravity" that accelerates your snowball down the hill.
3. Watch It Roll
Check the "Annual Income" chart. See how the bars get taller faster and faster? That's the snowball effect in action!
What is the "Dividend Snowball"?
The "Dividend Snowball" is a metaphor for the compounding effect of reinvesting dividends. It works exactly like rolling a snowball down a hill.
At the top of the hill, the snowball is small and rolls slowly. But as it rolls, it picks up more snow (dividends). The more surface area it has, the more snow it picks up with each rotation. Eventually, it becomes an unstoppable force, growing massively with every turn.
The 3 Engines of Growth
My calculator shows you how three distinct forces work together to accelerate your wealth:
- 1.Reinvestment: Buying more shares with your dividends increases your share count without you adding new money.
- 2.Dividend Growth: Great companies raise their dividends every year. This means each share you own pays you more over time.
- 3.Capital Appreciation: As the company grows, the stock price usually goes up, increasing the value of your principal.
Why "Yield on Cost" Matters
You'll notice a metric in my calculator called Yield on Cost. This is my favorite number to look at.
Yield on Cost is your current annual dividend income divided by your original investment.
For example, let's say you buy a stock at $100 with a 3% yield ($3 dividend). Ten years later, the stock is $200 and pays a $6 dividend. Your yield on current price is still 3% ($6/$200). But your Yield on Cost is 6% ($6/$100).
Long-term dividend investors often see Yields on Cost of 10%, 20%, or even 50% on stocks they've held for decades. That's the power of the snowball!
How to Start Your Snowball
Starting is the hardest part because the results look small at first. Here is my advice:
- ✓Focus on Quality: Buy companies with a history of raising dividends (Dividend Aristocrats or Kings).
- ✓Be Consistent: Add money regularly, even if it's a small amount. Consistency beats intensity.
- ✓Be Patient: The snowball effect takes time. The first 5-10 years are the "accumulation phase." The real magic happens after year 10.
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Discounted Cash Flow (DCF)
The gold standard for valuation. Estimate intrinsic value based on future free cash flows.
Frequently Asked Questions
How long does it take for the snowball to get big?
It typically takes 10-15 years to see significant momentum. In the beginning, your reinvested dividends might only buy a fraction of a share. But eventually, they'll buy one share, then two, then ten. That's when the growth becomes exponential.
What is a good dividend growth rate?
I look for companies that grow their dividends by at least 6-8% annually. This beats inflation and doubles your income roughly every 10 years. High yields (8%+) usually have low growth, while lower yields (2-3%) often have high growth.
Does this work with ETFs?
Absolutely! In fact, using a dividend growth ETF (like SCHD or VIG) is often safer than picking individual stocks because you get instant diversification. The snowball effect works exactly the same way.
Can I live off the snowball?
Yes, that's the goal! Once your 'Annual Income' (the blue bars in the chart) exceeds your living expenses, you are financially free. You can spend the dividends without ever selling a single share of stock.
Start Rolling Your Snowball
Every day you wait is a day of lost compounding. Use the calculator to set your goals and start investing today.
Calculate My Snowball