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Dividend Snowball

A dividend snowball happens when dividends are reinvested to buy more shares, which then pay more dividends in the future.

Why this matters

Reinvested dividends can become a major part of long-run total return. The effect is usually slow at first, then more visible later.

Simple example

You own 100 shares paying $2 per share each year. If you reinvest the $200, your share count rises, and next year dividends are paid on more shares.

Common mistakes

  • Focusing only on dividend yield and ignoring business quality.
  • Assuming high yield always means safer income.
  • Forgetting tax impact when dividends are not in tax-advantaged accounts.

Related terms

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Open next step: Run a dividend snowball scenario with DRIP on vs off