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.