If you are a dividend investor, getting that sweet dividend snowball rolling is the ultimate goal. Once the snowball gets going, you just have to sit back and watch your portfolio grow exponentially. At some point, the dividends will have earned you more returns than your own investments have. This is truly about making your money work for you. Not the other way around.

What is a Dividend Snowball?

The inspiration for the dividend snowball is drawn from nature. In high-peak mountains, when a small drop of snow rolls off the top, it gathers more snow around it on the way down. With its surface area increasing with every roll it turns, the ball grows exponentially. A small snowball the size of our palm can grow into the size of a house at the end of its journey.

The same theory applies to dividend growth.

However, the core concept behind growing the dividend snowball is re-investing your dividends. This is also known as compounding investments. Delayed gratification is the name of the game.

How does a dividend snowball stock investment work?

As we explained above, a dividend snowball relies on re-investing dividends, primarily. Another way you can speed up the snowball effect is through additional investments. Although not under your control, companies that increase payouts from time to time also help you grow the snowball.

Okay, how does a dividend snowball work?

(1) Pick a good dividend company

First, you pick a good company that pays a good dividend without fail. If this company pays inconsistent dividends, it greatly hinders your snowball progress.

Further, if you can pick a company that pays monthly dividends as opposed to quarterly and annual dividends, your dividend snowball will grow faster. This is to do with the frequency of re-investing dividends, and monthly re-investments are the fastest way to grow your portfolio.

It would also be helpful if you pick a company that has a share price of less than $50 at the time of your investment. This is just to help you re-buy the shares of the company with your dividend income. Unless you have a sizable investment, your dividend income (especially, monthly income) might not be sufficient to buy the shares.

So, important aspects to consider when selecting a company for the dividend snowball;

1. A good company with a trackrecord for consistent dividends
2. Better yet, if they increase dividends every once in a while
3. Monthly dividend paying company is the best (quarterly works, too)
4. A share price of less than $50 (not a must, but helps)

With this, we move on to the good stuff.

(2) Make your first investment

Once you have filtered out a company that fits the profile, you begin your investment.

If you are a new investor in Canada, we recommend using Wealthsimple Trade as your stock trading platform. They offer commission-free trades and lets you manage your portfolio.

How much to invest is totally up to you. Obviously, the higher the better. But you can start with very little as well. This just determines how fast you want to get your dividend snowball going.

(3) Re-investing dividends

This is another crucial step in kick-starting your dividend snowball. In the beginning, we encourage you to re-invest everything you make from your initial investment back into the portfolio.

If you picked a company that pays monthly dividends, you would receive a dividend paycheck just in the second month of your investment journey, which is pretty amazing. You put this money right back into the portfolio, preferably buying into the same company (because it is too good of a company to ignore). You can also buy into other companies that pay dividends and expand your portfolio while growing the snowball.

In the third month of your investment journey, you will be receiving your first income on re-invested dividends. This is truly growing your wealth. You invest the second month’s paycheck back into the portfolio. In the fourth month, you get a return on your original investment, the second month’s dividend, and the third month’s dividend.

And thus begins the journey of the dividend snowball.

Let us show this growth in a table for clarity.

This company has a share price of $30 per share and pays a 5% dividend yield per annum, paid every month.

Period	Initial Investment	# of Shares	Dividend/Month	New shares purchased
0	$20,000	666	0	0
1		666	$83.33	2
2		668	$83.50	3
3		671	$83.88	3
4		674	$84.25	3
5		677	$84.63	2
6		679	$84.88	3
7		682	$85.25	3
8		685	$85.63	3
9		688	$86.00	3
10		691	$86.38	3
11		694	$86.75	3
12		697	$87.13	2
13		700	$87.50	3

According to this table, you will be able to see how not a single month’s return has been the same as the previous month. Every month has seen a growth in the dividend return and the number of shares has grown from 666 to 700 WITHOUT any new money invested out of pocket.

If you could add a few more dollars of your money into this on and off, the snowball will really begin to accelerate.

If we sustain the investment pattern of this table (without any additional investments), by 2025, in just 4 years, you will have 830 shares and will earn you $104 dividends per month. That is $1,245 per annum, a 6.23% return on your original $20,000 investment. You have increased your yield by 1% without any additional investments and without taking into account any potential dividend increases by the company.

(4) Sit back and watch the dividend snowball roll

That’s it. Just three steps and re-do the same steps until you think you have a sizable snowball to start enjoying the returns.

Let us know your experiences with growing a dividend snowball and share your success stories in the comments below. If you have any questions, do drop them in the comments below.