eric1513/iStock via Getty Images Written by Sam Kovacs Introduction When it comes to dividend investing, there is a metaphor which I have yet to use, but which truly encompasses the concept, which is that of the Dividend Income Snowball. In this article, I will explain the metaphor and all of its implications, along with real life examples of stocks and how they fit in the model. Sound's good? Then let's dive into my Dividend Income Snowball Retirement Masterclass.
The Dividend Income Snowball Imagine you are at the top of a hill, holding a snowball. This snowball represents the dividends you'll receive in the first year you start investing. Of course, the size of this snowball is determined by two factors: how much cash you can invest into dividend stocks, and the dividend yield of the stocks which you chose to buy.
More cash creates a bigger snowball, as does a higher yield. Now, as you let go, the snowball begins to roll down the hill. Author's art As the snowball rolls down the hill, it starts to gather more snow, becoming larger and larger.
This gathering of snow symbolizes the growing dividend checks you receive. When you reinvest dividends, this packs more snow onto the snowball. If you're not yet retired, and are making monthly contributions towards your portfolio, this too packs on more snow.
This reinvestment increases your principal, which in turn generates more dividends in the next cycle, causing the snowball to grow faster and faster. Now, consider the slope of .
