Up to date on Could twenty second, 2025 by Bob Ciura
The snowball impact exhibits the ability of compounding.
While you push a small snowball down a hill, it constantly picks up snow. When it reaches the underside of the hill it’s a large snow boulder.
The snowball compounds throughout its journey down the hill. The larger it will get, the extra snow it packs on with every revolution. The snowball impact explains how small actions carried out over time can result in large outcomes.
In the identical method, investing in high-quality dividend progress shares can generate giant quantities of dividend earnings over lengthy intervals of time. That’s as a result of dividend progress shares are inclined to pay rising dividends yearly.
After which you possibly can reinvest these rising dividends to buy extra shares annually. This ends in a rise within the complete variety of shares you personal, in addition to a rise within the dividend per share, for a strong wealth compounding impact.
Traders in search of the most effective dividend progress shares ought to think about the Dividend Aristocrats, a gaggle of 69 shares within the S&P 500 with 25+ consecutive years of dividend progress.
You’ll be able to obtain an Excel spreadsheet of all 69 Dividend Aristocrats (with metrics that matter resembling dividend yields and price-to-earnings ratios) by clicking the hyperlink beneath:
This text exhibits methods to harness the ability of the snowball impact to multiply your wealth and earnings many instances over.
It additionally contains 5 actual world examples of the ‘snowball impact’ shares which have compounded investor wealth.
Desk of Contents
You’ll be able to immediately bounce to any particular part by clicking on the hyperlinks beneath:
The Energy of The Snowball Impact
Earlier than we focus on methods to harness the ability of the snowball impact we should perceive the ability of compounding.
The snowball metaphor visually exhibits the ability of compounding.
“Essentially the most highly effective power on the planet is compound curiosity”– Attributed to Albert Einstein
Right here’s the ability of compound curiosity:
Think about you invested $1 that compounded at 1% a day. In 5 years your $1 would develop to over $77 million. You’ll be among the many richest individuals on the planet by 12 months 7.
Remember the fact that compounding will not be a get wealthy fast scheme. It takes time – and plenty of it. There aren’t any investments that compound at 1% a day in the true world.
The inventory market has compounded wealth (adjusting for inflation) at ~7% a 12 months over the long term. At this fee an funding within the inventory market has traditionally doubled each 10.4 years.
It takes extra time to compound wealth in the true world – however that doesn’t make the precept of compounding any much less highly effective.
Take Warren Buffett for example. Warren Buffett is value over $150 billion. Warren Buffett’s wealth comes from the great advantages of the snowball impact by means of time.
Warren Buffett compounded his wealth by means of a particular sort of funding.
Buffett invests in:
Shareholder-friendly companies
With sturdy aggressive benefits
Buying and selling at truthful or higher costs
“All there’s to investing is selecting good shares at good instances and staying with them so long as they continue to be good corporations.”– Warren Buffett
The subsequent part of this text discusses methods to harness the ability of the snowball impact by investing in the identical sort of companies Warren Buffett does.
How You Can Harness The Snowball Impact
You’ll be able to harness the ability of the snowball impact by investing in the identical sort of companies which have made Warren Buffett so rich over time.
Particularly, corporations with sturdy and sturdy aggressive benefits and shareholder pleasant managements, buying and selling at truthful or higher costs.
The excellent news is you don’t even need to seek for these companies. There’s a checklist of 55 companies with 50+ years of consecutive dividend will increase referred to as the Dividend Kings checklist.
Nothing says ‘sturdy and sturdy aggressive benefits and shareholder pleasant administration’ like 50 or extra years of paying rising dividends in a row.
Coca-Cola (certainly one of Buffett’s largest investments) is a Dividend King. There are numerous different well-known shares within the Dividend Kings checklist, together with:
It’s possible you’ll learn this and assume: “these companies could have a historical past of success, however isn’t their run over”?
Traders have wasted great sums of cash chasing ‘the brand new scorching inventory’. It’s regular reliable outcomes that result in long-term wealth multiplication.
What would occur when you had invested in a number of the most well-known Dividend Kings in 1990?
The 7 instance companies beneath all had 25+ years of consecutive dividend will increase by the tip of 1990. They had been well-known, blue-chip shares in 1990.
It didn’t take a genius to purchase and maintain them…
However the outcomes converse for themselves. 5 examples of the snowball impact in motion are beneath. All examples assume dividends had been reinvested.
Instance #1: The Coca-Cola Firm (KO)
Coca-Cola compounded investor wealth at 10.4% a 12 months (together with dividends) from 1991 by means of 2022. $1 invested in Coca-Cola firstly of 1991 could be value $23.62 by the tip of 2022.
Coca-Cola was the most important soda model in the USA in 1990… And had a 98 12 months working historical past on the time. It was not a start-up.
Instance #2: Lowe’s Corporations (LOW)
Lowe’s is the second-largest residence enchancment retailer in the USA, behind solely The Dwelling Depot (HD). In 1991 Lowe’s was one of many largest residence enchancment shops in the USA. It had a dividend historical past of over 25 consecutive years of will increase even then.
Investing in Lowe’s firstly of 1991 (32 years in the past) has labored out very nicely…
The corporate’s inventory has compounded (together with dividends) at an unimaginable 20.4% yearly over this time interval. $1 invested in Lowe’s firstly of 1991 would e value $379.74 on the finish of 2022.
Instance #3: Procter & Gamble (PG)
Procter & Gamble was simply as well-known in 1990 as it’s immediately. The corporate has an iconic model portfolio with names like Tide, Bounty, Gillette, and Charmin (amongst many others).
The corporate was based in 1837. In 1990, Procter & Gamble had been round for 153 years… Not precisely a younger firm.
Nonetheless, long-term buyers in Procter & Gamble have achieved nicely. The inventory has produced 32-year annualized complete returns of 11.3% a 12 months. $1 invested in Procter & Gamble firstly of 1991 could be value $31.08 by the tip of 2022.
Instance #4: Colgate-Palmolive (CL)
Colgate-Palmolive traces its historical past again to 1806. Each the Colgate and Palmolive manufacturers are simply acknowledged.
Along with these manufacturers, Colgate-Palmolive owns the Pace Stick, Gentle Cleaning soap, and Hill’s manufacturers (amongst many others).
Colgate-Palmolive has paid dividends since 1893. The corporate has paid rising dividends for over 50 consecutive years. In 1991 the corporate had a streak of 28 consecutive dividend will increase.
How did 1991 buyers do? Colgate-Palmolive generated a compound annual returns of 11.7% throughout this 32-year interval. $1 invested in Colgate-Palmolive firstly of 1991 could be value $32.64 by the tip of 2022.
Instance #5: Johnson & Johnson (JNJ)
Johnson & Johnson is without doubt one of the most secure companies on the planet. This stability is mirrored in Johnson & Johnson’s lengthy historical past of dividend funds to shareholders. This ‘gradual and regular’ enterprise has been a boon for shareholders over the long-run.
The corporate generated compound complete returns of 12.4% a 12 months for shareholders throughout the 1991 by means of 2022 time interval. $1 invested in Johnson & Johnson could be value $42.41.
The corporate’s low inventory worth beta and volatility solely provides to its enchantment. Traders have traditionally generated wonderful returns with Johnson & Johnson inventory with out as many gut-wrenching ups and downs as in comparison with different shares.
Snowball-Impact Shares For The Subsequent 25 Years
All 5 examples above trounced the market regardless of being nicely established companies with lengthy dividend histories.
However…
What shares would be the subsequent snowball impact compounders?
There’s no must reinvent the wheel. Anybody holding the serial compounders above ought to proceed to take action.
For these trying to enter into new positions in snowball impact shares ought to search for the next:
Above common dividend yield
Beneath common price-to-earnings ratio
Lengthy dividend historical past
The largest constraint of the three is the lengthy dividend historical past. We’ll begin by deciding on solely from shares with 25+ years of rising dividends.
Out of those lengthy dividend historical past shares, we’ll display for:
A dividend yield above the S&P 500’s 1.3% yield
A price-to-earnings beneath the S&P 500’s ratio long-term common of 16.1
We’ll then kind these by anticipated complete return. Whole return is the anticipated earnings-per-share progress fee, plus the present dividend yield, in addition to the online impression of any optimistic or adverse modifications within the price-to-earnings a number of.
The ten highest anticipated complete return shares with 25+ years of rising dividends, a dividend yield above 1.30%, and a price-to-earnings ratio beneath 16 (utilizing knowledge from Positive Evaluation), are listed beneath:
Stepan Co. (SCL) | Anticipated complete return of 21.8%
Becton Dickinson & Co. (BDX) | Anticipated complete return of 19.4%
The Andersons Inc. (ANDE) | Anticipated complete return of 18.6%
Sonoco Merchandise (SON) | Anticipated complete return of 18.4%
PepsiCo Inc. (PEP) | Anticipated complete return of 17.8%
Jap Bankshares (EBC) | Anticipated complete return of 17.8%
Goal Corp. (TGT) | Anticipated complete return of 16.8%
PPG Industries (PPG) | Anticipated complete return of 15.3%
Farmers & Retailers Bancorp (FMCB) | Anticipated complete return of 15.0%
Tennant Co. (TNC) | Anticipated complete return of 15.0%
The ten shares listed above finest match the factors to finest reap the benefits of the snowball impact.
‘Snowball shares’ have sturdy aggressive edges. Proof of their aggressive benefits is seen by their lengthy working historical past and constant dividend will increase.
Lengthy-term investing in nice companies with shareholder-friendly managements at truthful or higher costs will very possible produce compound wealth beneficial properties over time.
Associated: The video beneath discusses long-term investing and wealth creation.
Bear in mind the snowball impact when selecting your investments.
Different Dividend Lists
The Dividend Aristocrats checklist will not be the one strategy to shortly display for shares that commonly pay rising dividends.
Thanks for studying this text. Please ship any suggestions, corrections, or inquiries to assist@suredividend.com.
