Building A Snowball

snowAlthough not a new concept, I like to think of my dividend growth stock portfolioย as a snowball.

If you can imagine standing at the top of a really steep hill, building your snowballย from scratch starts with getting your hands on some snow. And the snow, in the case of a dividend growth investor, is capital.

The Snowball Analogy

The snowball analogy is pretty apt, because the power of compounding eventually takes hold. You take a handful of snow, roll it into a ball, and then start to roll that ball downhill. Over time, it eventually becomes bigger and bigger as it accumulates more and more snow. The hope is to eventually turn that once-small snowball into a self-propelling machine. You’ll push that snowball along for many years yourself, adding fresh snow as you go. But eventually the snowball rolls all by itself.

Once that thing is rolling downhill all by itself, you’ll be alleviated of a lot of work. And that’s where you want to eventually be!

The Power Of Compounding

You can see this work with real numbers.

Investing just $1,000 at an 8% return, compounded monthly, turns into $24,273.39 after 40 years. So you take anย initial $1,000, which doesn’t seem like much snow. But roll it down a hill steep and long enough, and you end up with something sizable. $1,000 won’t deliver much dividend income all by itself, but almost $25,000 will produce ~1,000 per year in dividend income, assuming a 4% yield.

That’s your initial investment returned to you every single year.

Not bad! I’m ignoring taxes and inflation here for the sake of illustration, but you can see what happens when you add even relatively small amounts of snow and give that snowball a long enough ramp to roll.

The power of compounding is real.ย 

My Snowball

I started my snowball with $5,000 back in early 2010. Not a particularly big snowball at the start, as I was only able to produce $269.33 in dividend income that year. But I’ve continued to add snow and roll that thing downhill, and I’m going to earn more than $5,500 in dividend income this year. That’s after four years.

I realized at 27 years old I was standing at the top of a really long hill – if I could continue living for quite a while – soย there was this incredible opportunity ahead of me. Now after a little more than four years my snowball is almost $170,000. It’s not self-propelling quite yet, but it’s getting there!

Now, I’ve been aggressively saving and regularly investing that excess capital all along the way. So I’m still putting in a lot of the legwork. But, eventually, compounding will do more legwork than I will. And eventually I’ll stop pushing once that thing is rolling faster than I can run. Look out below!

Build A Giant Snowball Reasonably

The goal is to build the snowball as big as reasonably possible, while still enjoying yourself along the way. Dedicating your life to only building the biggest snowball you can will likely not lead to the most vibrant life possible, but at the same time the snowball itself will provide a lot of benefits unto itself, as the larger the snowball, the more passive dividend income you’ll likely generate. And the more passive income you can generate, the more time you have to spend time on things that matter to you. A delicate balance, but a lot of legwork early goes a long way.

But one fantastic aspect of all this snowball building is the fact that, one large enough, it obviously starts to pick up snow all by itself. Building a snowball from scratch involves a lot of work on your part from the get go. You rummage around and scrape up as much white stuffย as you possibly can. You pack this snow into a wonderful circle and you plop it onto the ground. You start to roll it down the hill, and pick up more snow as you go. Doesn’t seem like a lot of fun at first.

But over time, it becomes a lot more fun!

Dividend Growth Is The Secret Sauce – Real-Life Examples

See, just like a real snowball, over time your portfolio will start to build all by itself. And dividend growth is the secret behind the magic.

I’ll show you how that works.

I currently have investments with 49 high-quality companies spread across many different industries. And all of these investments are with companies that pay dividends. But even better, they regularly increase those dividend payouts.

I’ll give you some real-life examples from my portfolio and how dividend raisesย impacted my snowball just this past year.

Earlier this year, PepsiCo, Inc. (PEP) raised its quarterly per share dividend from $0.5675 to $0.6550 per share. That amounts to an increase of 15.4%.

I own 77 shares of this wonderful beverage and snack company. That means my annual dividend income went up by $26.95 per year. That’s like investing $898.33 of my own money, assuming a 3% yield (the approximate yield of PEP at the time of this raise).

That’s $898.33ย less fresh capitalย I had to scrounge up and add to the snowball. It’s picking up snow all by itself as it builds momentum.

Just last month, Target Corporation (TGT) increased its quarterly per share dividend from $0.43 per share to $0.52. That’s a 21% raise for shareholders. Awesome!

Since I own 70 shares of this great retailer, my passive dividend income increased by $25.20 per year. That’s like investing $840.00 of my own fresh capital at a 3% yield, but I didn’t have to. That’s because my snowball is rolling along now, building into a monster all by itself.

The Snowball Eventually Rolls Itself Downhill Via Dividend Growth

These examples are powerful. They prove that over time your snowball will eventually gain momentum, rolling itself down the hill with more force than you could provide. That’s really the power of dividend growth. It’s amazing how much a snowballย can grow even without someone pushing.

My portfolio is on pace to spit out more than $5,500 in dividend income this year. Average in just 7% dividend growth in aggregate over the next 12 months and I’mย looking at an additional $385.00 in dividend income before I even add any fresh capital myself. That’s likeย investing $12,833 of my own hard-earned money (assuming a 3% yield), except I didn’t. The wonderful businesses I’m invested in basically did that for me by raising their dividend payouts, in this example.

Looking into the future, the power of dividend growth is amplified. I anticipate to earn $15,000 per year in dividend income in less than a decade, essentially rendering me financially independent. Add in that same 7% growth across the portfolio, and after the first year I will have increased my income by $1,050. That’s like investing $35,000 of my own capital! And you can see how this builds on itself year after year, increasing the spread between income and expenses and thereby the margin of safety in early retirement.

This isย really whyย dividend growth investing can be so wonderful, and how a snowball can start to roll downhill all by itself. The key is to get a really long ramp, start early, and regularly add snow for a while. It’s hard at first to add snow month after month, pushing it along. It’s cold outside and pushing doesn’t sound like very much fun. Maybe you’d rather be inside drinking some hot cocoa. And I can’t blame you.

But if you take the time to put a solid portfolio together with equity in wonderful businesses that regularly and reliably pay and raise dividends, eventually you’ll be sipping hot cocoa under a warm blanket while that thing rolls downhill all by itself.ย You’ll likely be financially independent at this point, and you’ll be able to do whatever you want in life. You’ll be able to spend more time with loved ones, travel abroad, golf, read, or go on a long road trip. Whatever. But you won’t have to push anymore.

Full Disclosure: Long PEP and TGT.

How about you? Have you witnessed your snowball start to roll downhill all by itself?ย 

Thanks for reading.

Photo Credit: Salvatore Vuono/FreeDigitalPhotos.net

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164 Comments

  1. I’ve always loved the analogy of the snowball effect when it comes to dividend growth and building a sustainable dividend income stream. Great post and I like the real life examples to illustrate the power.

    Always a joy reading your articles, Jason. Keep up the good work
    R2R

  2. Hi Jason,

    I really enjoyed the article! You are making me think that I really should read Warren Buffet’s book Snowball, I was actually thinking about seeing if the Library had it earlier when I stopped by with my wife for a book she was picking up.

    I think that this is a great analogy, and even if you stop at some point you still have the little bit you started to keep compounding and growing. I just need to get my snow a bit of a kick start here! At 27 years I am basically at the same starting point (however not sure if I will get there by age 40, but hey that’s life).

    Kipp

  3. Nice example Jason. I haven’t read the book Snowball yet. Have you, and if so…..what did you think? You bring up a good point about a “self propelling” (or put another way, reaching critical mass). I’m not there yet, but I think for my family the critical mass value will be somewhere just shy of $500k invested. I’d be curious what other investors thoughts are on this.
    -Bryan

  4. I like the idea of the Snowballing effect. You start small, a few dollars here, a few dollars, then you invest it, and pretty soon the portfolio starts generating mind-boggling amounts of income..As with the poster below, I was thinking about Warren Buffett, and how he benefitted from the power of compounding and living a long life.

    In 40 years, at 8% and not adding any new money ( highly unlikely you will not be adding ANY money through 2054) your nest egg will be worth over $4 million and be paying you OVER $10,000/month in dividend income.

    You probably have not realized it, but you will die a very rich man ๐Ÿ˜‰ Of course, the most important thing is not to die with the highest checkbook, but have people who genuinely like you, and to have been able to affect the lives of others in a very positive way. Have you thought of how you are going to spend time in retirement, other than writing and investing? I struggle on that part.

  5. Hi Jason,
    Great example of compounding your wealth. I only have about 30k invested in Dividend Growth companies but I also only started about a year ago. I know that I have a long way to go. Thanks for another great article.
    -Mr Stock Fox

  6. Hey Jason, all of your dividends are going back into your portfolio now then, being snowballed, correct? So your living expenses are coming of you blog and writing income, no investment income?

  7. Jason,

    Another great article. I’ve never thought of the increase in dividends like investing fresh new capital. Great spin on that idea.

    Re: “The Snowball” book about Warren Buffett – I would highly recommend it. My only complaint is that it does go a little deeper into the story aspects. The author really tries to make his life poetic. I’m more interested in the facts and techniques, but the stories do add some nice commentary and background into Warren’s upbringing and how it impacted how he came to view the world and develop into the world’s greatest investor.

    For those of you who are interested, I would recommend taking it in as an audiobook. It took me about a month to get through it, but I did it while mowing the grass and doing other odds and ends around the house. If you listen on the iPhone, you can listen in 2x speed, which allows you to “read” the book in a much shorter period of time.

    Cheers!

    Nate

  8. Jason:
    I agree that “snowball” is a very accurate representation of DGI. It is a gratifying experience once an investor gets past the first few years of accumulating capital and investing it properly. I’ve heard it said before that “the first $100,000 is a bitch”. For many, even most, saving enough to have a $100K portfolio is a difficult milestone to reach. At that point, when the proper DGI stocks have been selected, the portfolio seems to take on a life of its own.

    I recently created some income projections going out 10 years. I was being conservative and used 5% as an overall dividend growth rate. Even with that rate, our dividend income will more than double in 10 years, without adding any fresh capital. If we choose not to spend all the dividend income and reinvest some of it. the effects would obviously be magnified. Talk about a lovely cost of living pay increase. Even though I began DGI late in life, I find those results most satisfying. Just imagine what it will do for you by the time you hit 60. You’re doing it up right.

  9. R2R,

    Appreciate the support! Glad you enjoyed the article. I’ve been meaning to put a post like this together for some time now.

    I hope your snowball is healthy and picking up momentum over there. ๐Ÿ™‚

    Cheers.

  10. Kipp,

    That’s a great book, and I highly recommend it. I especially appreciated the stories involving Warren’s frugality. Some of that stuff is just legendary.

    You’re at the top of a really long hill there at 27 years old. Get that thing moving early on and it’ll do most of the work later. ๐Ÿ™‚

    Best wishes.

  11. Bryan,

    I thought it was a great book. It’s a long, but entertaining read. It was more of a personal book rather than investment advice, and that’s what I enjoyed about it. I highly recommend it. His frugality measures like using a dresser drawer for a crib are just plain legendary.

    $500k is definitely a sizable snowball. You’re probably putting out $17,500 in annual dividends at that level. Even mild dividend growth propels that thing along pretty nicely. ๐Ÿ™‚

    Best regards!

  12. DGI,

    Thanks for stopping by.

    Great point there in regards to the portfolio. I actually realized that a while back and wrote an article basically stating that I’m a guaranteed millionaire at this point. Even adding no more capital (which isn’t going to happen) still puts me on pace for a seven figure portfolio when I’m much older. That’s an awesome realization.

    As far as what I’ll be doing in early retirement, a lot remains to be seen. And maybe exploring those options is half the fun. Really depends on where I’m living and what my life situation looks like at that point. I thought it might be cool to explore the world a bit, but really depends on what’s going on with my family at that time. I have conflicting interests sometimes, with travel and spending time with family being among them. But you never know what opportunities or adventures may present themselves. And being flexible and open for these opportunities is really important.

    Best wishes!

  13. Debs,

    Correct. My dividend income is being reinvested 100% right now. I don’t take any of it out for living expenses. As you can see on last month’s budget report, my non-investment income more than covered expenses. And I hope that remains true for the foreseeable future. ๐Ÿ™‚

    Cheers!

  14. Nate,

    Glad you liked the fresh take on dividends. I try to make some of these ideas very approachable.

    As far as the book goes, I actually quite liked all the stories behind the results. Of course, I’m a bit of a Buffettphile, so that stuff was just right up my alley. ๐Ÿ™‚

    I never checked out the audiobook. I instead read it over the course of a couple months at work, during breaks and slow times.

    Best regards.

  15. Steve,

    I agree that one the $100k milestone is passed, the snowball seems to roll downhill faster. It definitely gains steam at that point, as my results have shown. It’s tough to get things rolling in the beginning, but one must keep a long-term perspective.

    That’s awesome that things are looking so good for you guys. Even a pessimistic scenario has you receiving a huge increase in your income. Gotta love that! ๐Ÿ™‚

    Best wishes.

  16. “turns into $24,273.39 after 40 years.” Got a typo there amigo…more like $292K

  17. I definitely empathize with your conflict. I’m also really into my career at this point, and don’t want to have any regrets in a decade (and later) about not trying something or moving some place that interested me and would have been a good job to try.

    My sister is getting married next year, and being the total loser that I am, I’m already excited about being an uncle someday! Hopefully, after the baby is ~6 months old and stops sleeping all day I’ll take it to the park to pick up chicks, haha. ๐Ÿ™‚

  18. Its a tough balance i have problem with. Saving vs enjoying life.

    Momentum is key to saving and your savings rate is right on track. You cant lose saving more than you make at any level.
    This bodes to one of my favorite sayings.
    Money makes money! and then some!

  19. No roll yet, but it’s interesting when I pull up my Vanguard statement and see cumulative returns (total value today / total invested) of > 20% (not CAGR).

    I think I noticed the snowball when I saw $12k in total value gain from 2012-2013, and $8k in total value gains YTD 2014. Seems the gains of all sorts are drowning themselves.

    My hope is to eventually split my income portfolio between a taxable account and put some into an IRA as well to be a little bit more tax efficient, but I hope I have more capital than the tax-advantaged accounts can handle and I have no choice but to put the remainder into taxable. ๐Ÿ™‚

    I like the idea of the tax deferral so I get an extra boost at age 60 to my stash that’s available to me. If I can resist withdrawing and just continue to reinvest, who knows what will happen to it by 65 or 70!

    I’m also considering opening up a Roth with Prosper/Lending Club and contributing around $10k. It’s small enough to not make me uncomfortable if it underperforms, but if I can manage 6.5% returns and have a massive income producing account in 30 years… it may be a nice thing as well. I still havent’ done enough research to pull the trigger, but it’s probably in the cards in the next few years.

    Happy investing.

  20. Jason!

    It’s summer!!! No one ever told you to never talk about snow in july?! We’ll have plenty of snow pretty soon… yeurk! I don’t want to shovel my driveway ever again… ๐Ÿ˜‰ Make it a mud ball or something like that please!

    Nah just kidding! I really love the comparison too.

    I just started this dividend growth investing journey in november 2013 and I already can see the beginning of a snowball effect. I should have 30,000$ invested by november 2013, which should yield me ยฑ1000$ in dividend income for next year. It doesn’t sound like much, but for me, it’s amazing and since I want to retire in 12 years, I know that with an 8% compounding growth, this 1000$ will become +/-2300$ in 12 years and +/-4300$ in 20 years, +/-9300$ in 30 years… and so on!

    It makes me feel like a kid just to think about it! I haven’t had that feeling since I use to play Monopoly! We should create a dividend growth board game or Iphone game. I’m sure it would be fun and it could help kids build great saving and investing habits. ๐Ÿ™‚

    Thanks for the great post! By the way… do you miss Florida a little?

  21. Gotta love the resnowball analogy… I tried to have this conversation with people at work the other day. It went way over their head. “There is no such thing as retirement anymore. People will be working into the late 60 and early 70s.. Besides what will you do with your time”…I don’t know about them, but I can think of a lot of things I would rather be doing such has sitting on a beach or by a pool why investment income hits my account.

  22. I am witness to the snowball phenomena right now. It is still early to be life altering, but I can see it in the future being truly a game changer. Stay strong DM and all his followers because when it starts to happen life is very peaceful

  23. Ravi,

    Haha. I don’t know if a baby works well for something like that, but I suppose it’s worth a try!

    Yeah, I’m very excited to be an uncle myself. My sister is expecting here in just a couple of days. So big changes ahead!

    And I’m also excited for what opportunities may present themselves in the future. Being tied down by a massive mortgage and a job that keeps you busy for most of your life really limits your ability to take advantage of opportunities as they pop up.

    Thanks for stopping by!

    Best regards.

  24. Asset Grinder,

    Money definitely makes money. And it works harder than I ever could. So why get in the way of this? I’d rather just step back and let money do what it does best. ๐Ÿ™‚

    Cheers!

  25. Ravi,

    Nothing wrong with splitting the capital up like that. I think most investors would be best off by taking maximum advantage of tax-advantaged accounts. I choose not to due to my rather unique situation, so we’ll see how it all turns out. ๐Ÿ™‚

    I haven’t really looked into P2P lending much. Let me know how you like it if you go that route!

    Cheers.

  26. Allan,

    Haha. A mud ball just doesn’t have quite the same ring to it. ๐Ÿ™‚

    Sounds like you’re making great progress over there. The power of dividend growth is real, and when you add in regular infusions of fresh capital you’re really setting yourself up for a situation where you can’t help but become financially successful.

    I’d LOVE to create a game like that, but I don’t have the programming ability to do anything digital like that. But maybe we should bug Hasbro or something for a board game!

    As far as Florida goes, I actually don’t really miss it. I do miss my partner down there. She’s incredibly sweet and thoughtful. And I’m confident I couldn’t have made it here without her. We still talk pretty much every day, and there’s even the possibility she might move up here at some point. So you never know. But I don’t miss the state itself. Of course, we’ll see how much my tune changes come January!!

    Best regards.

  27. IP,

    It’s sad that more people can’t see the light. I gave up trying to discuss this with the general public a long time ago. I’m happy to share and help if asked, but people have to change because they want to. The motivation has to come from within.

    Thanks for stopping by!

    Best wishes.

  28. SE,

    Thanks for stopping by and sharing. I’m staying strong, and I hope everyone else is as well. The power of dividend growth is real. Just gotta give it time. ๐Ÿ™‚

    Best regards!

  29. Great post Jason…as a family who previously been through the debt snowball, I must say that much rather prefer the snowball moving in the other direction. In just a short time period of investing exclusively in dividends stock, we are already starting to feel the snowball and can only imagine the snowball effect a few years from now!

    Cheers to continued growth of our snowball! AFFJ

  30. Great post! The snowball analogy is very fitting towards investing. Everything starts out small, but once you get rolling then things just start to compound. There’s also a book about Warren Buffett titled Snowball.

    Cheers!

  31. I have been starting my dividend snowball, but I’m still heavily invested in the avalanche that kick started my journey a few years ago. I’m still invested in it even though my portfolio is insanely out of balance because of it. When I invested I was waiting for the company to fully execute it’s plan that it had laid out at the time. That plan still has a few years left on it so I’m not touching the money yet but I think no matter what I’ll come out far ahead of my initial investment. Tesla is not a stock that you talk about, and I would guess that in 20 years they probably still won’t have a dividend, but my timeline when I got in was for when the produced their mass market car, then I could get out. Unless something tragic happened before that time, then I might cut my losses and run. Every time I consider selling to get more balance I think back to what I thought when I originally bought and my original reasoning hasn’t changed so I stick with it.

    Anyways, I like building my snowball!

  32. I love the snowball story and, looking at the numbers, it really does work. I guess the saying “money makes money” is true, and we all have to start somewhere. Looking forward to building my snowball!

  33. Gotta love pushing the snowball and making it grow! Just added another $18 in dividend income a year to mine ๐Ÿ™‚ Its all the little bits that add up right!
    And the next time one of my stocks raises its dividend I’ll definitely be doing the math on how much i would have had to buy to get the income increase. ๐Ÿ™‚

  34. Early on when my portfolio was in the $6000’s, I seriously thought about giving up and selling everything because I felt like I was dumping truckloads of cash in and only getting a few dollars in return. I’m so glad I didn’t quit then! My portfolio has doubled in value since then, and already I can see that my snowball is picking up a few more flakes than it did just a few months ago.

    I’m planning on retiring in 17 years – I’m really excited to see just what kind of creature my snowball will have evolved into by then!

  35. Jason,

    Another great article! You have convinced me time and time again that DGI is a sound strategy. I have finally decided to go for it myself and see where I end up.

    The only thing that I’m still not certain about is the fact that my snowball is being slowed down by almost 40% of withholding taxes (15% foreign + 25% in Belgium). I know you keep your investments in taxable accounts, but would you also do so if you lost 40% of your dividends?

    Kind regards,
    NMW

  36. I like the way you equate your dividend raises to the capital you would have had to invest to achieve the same – illustrates the point really well.

  37. IP, what you’re saying is so true! People are institutionnalized! Whoa what a big word. What I mean by that is that their behavior has been programmed by society and repeated routine. Changing anything in their usual habits scares them. They became unable (were they ever able?) to think outside of the box. But, I think it always been like that. Like in the movie The Matrix, some of us know that something is not right and that there must be “something else”… Some don’t! Even Plato had wrote the allegory of the cave thousands of years ago and he was basically saying the same thing…

    Don’t change your way of thinking. We are not machines! Don’t let yourself become a zombie like them! There are so many things to do on this planet that we give up because we have been led to believe that “we have to” work.

  38. I know that here in the Netherlands there are various tax-treaties with other countries to prevent double witholding taxes on dividend income. It seems the situation in Belgium is a little more complex due to national law, which is a bummer.

    In some countries like the Netherlands there’s no witholding tax applied to stock-dividends. In that case the first 15% would not be applied (the 25% belgium witholding tax unfortunately still applies even when receiving stock dividends). I don’t know in what country “your” companies are situated, but this may be something worth looking into.

  39. Superb article Jason. It illustrates very well the power of DGI and compounding.

    One remark though: The snowball can also melt. When recession kicks in then this eats into your portfolio value. And in many cases div’s are reduced are even completely cut. Personally I have taken hits as hard as 50% in the past. I don’t want to spoil the party, but it’s something that needs consideration. Any idea how you will manage this?

    Have a nice day.

  40. I recently opened a Scottrade account for my 10 year old granddaughter with an initial investment of $10,000. I hope to be able to add at least $1,000 new capital each year. With compounding, this account, invested in DGI stocks should provide her with a head start to FI. As she gets older I’ll teach her about DGI and hope she can eventually manage the account herself. It will be fun to watch the snowball pick up steam as it rolls down the hill over the years.
    I love this blog DM. I’ve gained a lot of useful information and insights since I started reading. Thank you for sharing your journey with us.

  41. Love the classic snowball analogy.

    I had a 1-year experiment with my snowball. My original snowball was pretty large and rolling down the hill at a quick pace.

    Last July I decided to utilize all of the dividends I was receiving in my taxable account and reinvest these dividends into a preferred shares ETF (I wanted to diversify my portfolio with a small position in preferreds). Every month I would take my dividends and divert them into this ETF.

    I earned $685 in dividends last July and invested it in this ETF. Initially, the $685 was providing me with about $2 a month in dividends. Every month after that, the amount of money I earned from dividends would be allocated to this ETF. Consistency paid off. One year later, after reinvesting all of my dividends into this ETF, the value of this ETF is now just shy of $7,000. I never had to work for that $7,000. The entire $7,000 came from dividends from my other stocks. This ETF now produces on itโ€™s own about $26-27 per month in dividends.

    The 1-year experiment being over, Iโ€™m now going to reinvest my dividends into existing companies that I already own. Itโ€™s very tempting to take the dividends I earn every month and use it towards my spending, but delayed gratification is the way to heed.

    Do you ever feel tempted to spend your dividend income?

  42. I got my snowball rolling well. I started April 2008, my stock dividend income was $4.91. I was holding cash for 3 houses I sold in July 2006 that were in Las Vegas that made huge increases over 4 years. I started moving $2000-$4000 a week to dividend stocks doing one purchase a week. Then I starting adding 50-75% of my paycheck in January 2009. My dividend income now averages $13,155 per month which I continue to reinvest and put at least 60% per month of my pay check towards new purchases. I now have 53 dividend stocks that all throw off at least $650 per quarter in dividends. Since 2010, my working income has gone down 8.9%. My dividend income has increased at least 10% per year.

  43. Thank you DM for inspirational post with easy to understand examples. I like the way you related the dividend growth with fresh capital. Whenever dividends get raised in my portfolio I always think the way you think.

    I started to roll out my retirement snowball in March 2012, but at the time I didnโ€™t have enough money, so I borrowed money from credit cards (with low promotion rates โ€“ 0% to 1.99%) and invested in high quality stocks. It worked really well for me, and I was able to build almost 100Kportfolio in less than a 2.5 years. I know this is a risky idea and may not suitable for all investors.

    Now, I am focusing to pay down my debts, and let the portfolio grow itself.
    Cheers,

  44. Heh, I like the term Critical Mass. I think that once you reach that point (the self-propelling snowball or the critical mass), just a little side income can be a huge safety margin. I think I will be right around the same mark of money invested required to provide a sustainable income (once all debt is gone). I mean 4% of 500k is $20,000 a year. With no mortgage that is easily doable.

    The great thing about Dividend Mantra’s strategy is that once you reach the point where dividends and expenses equal, that is basically your lowest cash flow you will have it seems. Most dividends seem to outpace inflation so your purchasing power will only grow giving you a large margin of safety and the ability to enjoy vacations on the same amount you already have invested. And those years you don’t use all the money you can just toss it back on the snowball. It is a great strategy!

  45. Nice article with good examples of the compounding effect. The key to the compounding is the duration. The more time we can roll the snowball down the hill, the bigger it becomes.

  46. Fantastic post, Jason! I love this analogy and reminder that even a small amount goes a long way. For those of us earning a moderate salary, aggressive saving is consistently a challenge. It’s important to find inspiration whenever possible, so thanks for that. I’ll have to check out Warren Buffett’s book. The general consensus seems to be “two thumbs up!”

  47. I’ve only just started my snowball as the intention is to pay off the mortgage first, however I love the analogy! Looking at monthly savings calculators with compound interest towards the end of the journey the monthly interest additions start to outweigh the contributions! Awesome ๐Ÿ™‚

  48. Kipp, i didnt see the light until 29 or so. I felt like i wasted so much time. But then i realized that waking up at 30 wasn’t the worst thing in the world that could happen. Waking up at 50, losing a job, can’t find a new well paying one because of age discrimination and having low savings would be devastating.

    I work with people, who at 40 (peak of their careers) pulling in low six figures a year with virtually no savings who literally put xmas on a credit card. Unreal.

  49. I’ve already gone into it with Prosper in a taxable account. The account shows a gross return (annualized) of ~8%, though I’ve taken a somewhat conservative investment stance as compared to others who are going for the very high risk loans and are averaging closer to 11-12%.

    It is fairly hands off which is nice. I set the filters and just let it reinvest all on its own.

    If I were to like it to DGI, it’s sort of a “stage 1” stock. No growth, but lots of cash flow as the payments are amortized (principal + interest), and therefore fairly short term. Even though the max term if 5 years, the “effective duration” if you want to think of it like a bond is much lower, as you can reinvest the payments along the way elsewhere however you want.

    Up until now, I accumulated ~$12k in a taxable Prosper account, but plan to wind down the account as I am now squarely in the 25% federal bracket, and approaching 28% maybe a bit more over the next decade. My first goal is to get it down to $10k, and then decide if I just want to maintain at $10k (and withdraw interest earnings only) or wind it down completely.

    Since I don’t use the income, I think the best way is probably to roll over a IRA or Roth for $10k (minimum balance to avoid maintenance fees) in order to maximize the benefit and minimize the risk, and then just let it grow. Again, it’s a bit of a risk, but even 5% compounded for 20+ years is nothing to sneeze at. I can only imagine if I keep it until age 70 (when RMDs start for IRA) or indefinitely for a Roth how substantial the interest will become in 40+ years.

    It may be worth considering a Roth for yourself at $10k and then just leave it be to get a bonus avalanche in retirement. I don’t plan on letting it be more than 10% of my invested assets (probably a bit less).

    Overall, more upside than downside, and we’ve got time on our side.

  50. I think a mix between a rental property, dividend income, and p2p earnings is a great way to generate passive income. The dividends will almost definitely grow faster than the other two, but I think it’s a powerful cash flow mix to have.

    Today, it’s ~$900/mo (monthly avg of annual estimate), so very strong diversification between RE/equities/personal credit.

    In any case, I may change my tune over the years as I see how it plays out.

    As an aspiring investor, I’m excited to try new things. It really is remarkable that we have so many investment options here in the US.

  51. Have you back-tested your portfolio to see what happened with your overall portfolio if you had sold vs held and continued to reinvest through the last recession?

    I know a handful of companies that reduced their dividends, but there are also others which maintained or even increased payouts.

    I wonder if anyone did some analysis on this already? I’d also love to see a quantified example of how holding through a dividend cut can play out.

  52. I can never have enough KO. Today’s pullback did allow for a 3% yield which is my minimum threshold for a KO purchase.

  53. AFFJ,

    I can imagine how much better you guys feel with the power of compound interest working for you instead of against you. I’m lucky in that I never had to climb a mountain of debt, but I did have both student loan debt and a car loan when I first started. I sold off my car to eliminate the car loan, but I’m still paying on the student loan debt because the interest rate is low and the interest is tax-deductible.

    Cheers to continued success for both of us. ๐Ÿ™‚

    Best regards.

  54. Henry,

    I really enjoyed Buffett’s biography; it’s on my recommended reading list. I think the title is obviously pretty apt. ๐Ÿ™‚

    The key to a snowball is to get the thing built and rolling. But even a really small snowball can eventually turn into a monster.

    Thanks for stopping by!

    Best wishes.

  55. I just picked up some NUS. Selling puts on IBM. I’m not paying more then 10x pretax earnings for anything! Buffett won’t pay over 10x pretax earnings so neither will I. Buffett bought KO,V, WFC, IBM less then 10x pretax income, this is one of the main reason why his returns are extraordinary. Here is a SA article that explains his IBM purchase in detail http://seekingalpha.com/article/2318995-ibm-according-to-warren-buffetts-annual-letters-to-shareholders

  56. Zee,

    I definitely prefer the dividend growth investing strategy due to the dividends themselves reducing risk, but a fantastic company bought at the right price can be a fantastic investment, irrespective of whether or not their stock pays a dividend. Tesla is definitely a riskier play than I would ever consider, but I can see how it could be a blockbuster stock.

    Keep rolling that thing along. ๐Ÿ™‚

    Take care.

  57. Nicola,

    We all start somewhere. But if there’s anything my journey proves, it’s that you don’t need much. A little here and there adds up to quite a bit over time. You just have to stay consistent and committed. ๐Ÿ™‚

    Best of luck building that snowball. The key is to get it rolling.

    Cheers!

  58. Dividend Wisp,

    $18 here and $18 there adds up to quite a bit over time. Trust me! The power of pennies is incredible.

    It’ll be interesting to see what your next dividend raise looks like, and how much capital you would have had to invest to get the same income. It’s fun to do the math. ๐Ÿ™‚

    Thanks for stopping by!

    Best regards.

  59. Seraph,

    That’s fantastic. I agree it’s tough going in the beginning. I still remember when I first started telling my family of my plan to retire by 40, eventually earning thousands of dollars per month in dividends. And after the year I only earned a few hundred for the entire year. So it was a bit tough to stick to the plan. But the math added up and I had the vision. I could see things happening.

    It’ll definitely be interesting to see where your portfolio is in 17 years. I’m confident that you’ll be shocked and delighted. ๐Ÿ™‚

    Cheers.

  60. NMW,

    A 40% tax would be tough to swallow. I’d have to know all the ins and outs to make an informed decision. I do know, however, that I would do as much research as possible to find any advantages and/or disadvantages the system I was exposed to had. And would do my best to put myself in a situation that maximized the advantages and minimized the disadvantages.

    I do sometimes face tax situations like this as we’re taxed 15% on our dividends once a certain tax bracket has been breached (which I’ve been exposed to up until now), and then any foreign holdings are usually taxed by foreign entities, unless we have a tax treaty with that country. I face this scenario with my Canadian stocks. However, I’m able to recoup these foreign dividend taxes through a dollar-for-dollar credit when I do my US taxes.

    Taxes are a complicated subject, and so that’s why I don’t get too involved with it here on this blog often. But, again, I would do some research over there and figure out how best to proceed.

    Best wishes!

  61. UTMT,

    I think sometimes that point is lost on people. But dividend raises are much more powerful than what one might first think. When you realize that you might have to invest $1,000 or more of your own capital to achieve the same effect the idea kind of clicks in the brain.

    Thanks for stopping by.

    Best wishes!

  62. Jos,

    The key is to focus on the income the snowball provides, rather than the absolute size of the snowball. When you look at things that way you realize that a melting snowball actually creates opportunity.

    I actually find it amusing when people claim I wouldn’t be as successful if the market wouldn’t have appreciated so much over the last four years, when my dividend income would actually be much higher had that not happened. Cheaper stocks = higher yield. Don’t forget that. ๐Ÿ™‚

    Best regards!

  63. I do like reading your blog and I’ve even copied some of your investments, but I really hate this “rolling-in-imaginary-wealth” -crap. If you assume a constant return over several decades, you will absolutely always be just wrong. Nothing works like that. If you’re just illustrating a point then it’s OK, but at some point somebody is going to think that their investments will actually grow like in your illustration.

  64. Emerald,

    Wow, that’s really wonderful. You’re doing a great thing there. I’m confident that not only will that provide her the kind of capital/income to get rolling, but it will (hopefully) teach her lessons about investing, saving, compounding, and delayed gratification.

    Keep up the great work. Your granddaughter will surely thank you one day.

    Best wishes!

  65. Curtis,

    Haha! I love that picture. I found that picture as well when I was looking for a good pic for this article, but I couldn’t find a way to properly cite it. Wasn’t sure of the original author, and I didn’t want to open up a can of worms. But an awesome snowball right there. Mine is nowhere near that now, but will be one day!

    And compounding works in a number of ways. The key is to get it on your side as soon as possible. ๐Ÿ™‚

    Best regards!

  66. $25000,

    That’s really cool. The dividends can fund a whole separate portfolio all by themselves. I’ll likely be engaging in a similar exercise myself once I’m ready to open another brokerage account. I’ll funnel all existing dividends out of one account and into another one day, thus allowing my dividends to put in some serious legwork in a very visible and gratifying way.

    I’m actually never tempted to spend my dividend income at all. In fact, if it ever gets to the point to where I can’t pay for expenses via writing alone then I’ll go get a conventional job again. Using dividends for current expenses wouldn’t even be an option unless I found myself in an emergency.

    Keep up the great work over there. You’re well on your way to $25k. ๐Ÿ™‚

    Best wishes.

  67. Dave,

    That’s good stuff right there. I don’t know if I’ll ever get to $13k per month (wow!), but I’m doing my best to get to that level on a yearly basis.

    Once that thing is big enough you really don’t have to push at all anymore. You’ve obviously already reached that level. Enjoy sitting back and enjoying the fruits of your labor.

    Cheers.

  68. FJ,

    That’s not a strategy I would use, but it sounds like it worked out for you. I built everything I’ve got without margin, and so I own everything 100%. But I’ve heard of others using leverage to amplify the returns. That works well in a rising bull market, but obviously does not work so well in a falling bear market.

    Enjoy that snowball, though. You’ve built it into quite a monster in a very short period of time. ๐Ÿ™‚

    Take care.

  69. DGJ,

    Absolutely. You basically have only three variables for your return: capital, time, and growth rate. If you can maximize all three of these you’ll have a really huge snowball over time, but even just maximizing time allows relatively small amounts of capital and a smaller growth rate to provide huge returns. That’s why starting early matters.

    Cheers!

  70. Addison,

    Buffett’s biography is wonderful. Highly recommended. ๐Ÿ™‚

    And I’m happy to provide the inspiration. I know it can be hard at times, but sticking to the plan is extremely important. Your future self will thank you.

    Thanks for stopping by!

    Best wishes.

  71. EarlyRetirementGuy,

    Thanks for stopping by.

    Best of luck paying off the mortgage as fast as possible so you can get compounding on your side. Those calculators are pretty inspirational when you see the power of compounding right in front of you. Certainly keeps me motivated! ๐Ÿ™‚

    Take care.

  72. Teppo: You are certainly right. The returns bounce around a lot. I started my dividend portfolio (10 stocks with even dollars to start) back in Aug of 2008 and promptly lost over 20% by the end of the year. Including dividend reinvestment my returns look like this:
    Actual S&P Return
    2008 Aug – Dec -20.22% not sure
    2009 30.96% 26.46%
    2010 25.96% 15.06%
    2011 10.67% 2.11%
    2012 4.33% 16.00%
    2013 22.43% 31.90%
    2014 10.12%

  73. Ravi,

    Thanks for sharing that. Appreciate your time!

    I’m wondering if P2P lending complicates taxes? Seems like a lot of mini transactions to keep track of. The taxation % wouldn’t bug me too much if the cash flow was sizable enough, but I’m looking forward to probably paying little in dividend taxes next year now that I don’t have the conventional job income anymore.

    I’m going to stick to what I know best for now, however. And I keep hearing about some of the best loans being sucked up by institutional investors now. That’s certainly good in that it creates a very liquid environment, but can limit returns.

    Cheers!

  74. gibor,

    My capital is constrained, so I can’t really buy anything right now. Though, KO still looks expensive even after the pullback. TRV got smacked too.

    Not quite as bullish on MCD, though I already have a fair amount. I’m a bit concerned about the perception of quality there, and whether or not they can keep up with some of these higher-end burger joints.

    Cheers!

  75. frank,

    NUS is interesting. I’ve never taken a look, but the metrics look impressive. It’s pretty volatile, but other than that it seems like there’s a lot to like there. I’ve never been a big of direct-sale business models, but they’ve obviously done well. Thanks for the suggestion!

    Cheers.

  76. Sounds good Jason, the snowball effect works for investing and debt very well. Question how much do you foresee percentage wise that you will keep reinvesting to protect the portfolio income against inflation?

  77. DFG,

    I’m with you on minimum management, and I try to accomplish that through a low turnover rate. I once heard a portfolio is like a bar of soap: The more you handle it, the less you’ll have. I think that’s pretty appropriate.

    Best regards.

  78. Teppo,

    I’ve never attempted to infer that one will receive a constant, unwavering rate of return year in and year out. Downturns are opportunity. However, one can’t predict the future, and so forecasting a rate of return is simply using the averages. If you can’t absorb an unrealized 30% loss without panicking, stocks are probably not the right asset class for you.

    Cheers!

  79. Pingback: Dividend investment as snow ball | Goto 50
  80. Bart,

    Thank you for your reply.

    Belgium also has tax treaties with other countries: we get a foreign withholding tax break up to 15%. That means for US, French, Swiss, Dutch, German, … stocks (basically all stocks except for British ones) we pay 15% foreign taxes with the tax treaty. On top of that there’s the 25% Belgian tax on dividends, making it a total 36.25%.

    If I’m not mistaken Dutch investors can deduct the final 15% foreign taxes from their income taxes, right?

    Cheers,
    NMW

  81. Hey Mantra,

    I’m glad your recent move went well. I too have left my job not so long ago to start on fresh basis. I earn much less, but I am more happy and determined to get out of the rat race for good.

    All the best!

  82. Jason,

    Ha, know all the ins and outs! Even one of our ministers wasn’t able to answer a question on the foreign taxes in Parliament! ๐Ÿ˜‰
    It’s an extremely messed up system over here and a grey area that the European Commission has been targetting for years now, but no luck so far. I wish we had the Dutch system which is extremely favourable to dividends.

    Thanks for your advice, that’s basically what I’m doing right now. To be sure I have set an appointment with a financial advisor. Will cost me a pretty penny, but better safe than sorry in the long run. If it turns out dividend growth investing is a bad idea tax-wise, I’ll stick to accruing ETFs since we don’t have capital gains taxes.

    Kind regards,
    NMW

  83. Hi Dm,

    I started with a few snowflakes and it already turned in a nice snowball. I started 5 years ago and it did already grow to 164 000 EUR. The money is starting to work by itself and it is a great employee. It never stops with working. Keep on pushing the snowball.

    Cheers,
    G

  84. It’s actually very simple. Prosper issues a 1099-OID form which you can input several lines into TurboTax (which I use), or any other software, and that’s about it.

    You don’t have to track anything yourself.

    I think the hype over II’s taking all the “best” loans is warranted, however, it’s probably a smaller impact than you think. I have no numbers to support this, but even with II’s, I’ve been able to generate an 8% (pretax) return with minimal effort other than setting up some basic filters. I don’t have enough invested to get too specific (like Peter at lendacademy.com who has shown all his filters), and likely wouldn’t generate any alpha anyway since the cash flow would be relatively low.

    If I had to pull a number, I’d say with/without IIs you could generate 8/8.5%… however, having II’s on the platform increases liquidity, so overall I would say the value proposition is the same, or even a little better, with more investors.

    At this stage of the product development, it’s worthwhile to sacrifice some small amount of *possible* returns in return for enhanced liquidity, growth of the platform, reduction of transaction costs, etc.

    Just my opinion, anyway…

  85. Financial Freak,

    Man, I’m with you! Glad to hear you’ve made a similar decision and it’s working out for the best. Money definitely does not equal happiness.

    I hope your journey to escape the rat race comes to a successful conclusion. And I hope you continue to stay in touch as you march down that path. ๐Ÿ™‚

    Best wishes.

  86. Geblin,

    That’s awesome! Glad to hear of your success thus far. That’s well above what a lot of people have for their entire retirement. And you’re just getting started. ๐Ÿ™‚

    I love my little extra worker in the house. Right now, he’s grossing $2.75/hour at his full-time job (counting two weeks of vacation). But his income is growing every day. And he still doesn’t need food or a room. I’m digging it!

    Thanks for stopping by.

    Take care.

  87. Ravi,

    Taxation sounds very easy. Thanks for adding that. Much appreciated.

    And I agree with you in regards to institutional investors. Seems the benefits outweigh the drawbacks. They certainly want to see that platform succeed if they have big money riding on it, so you’ve got some support there.

    Cheers!

  88. I love the snowball analogy! My portfolio hasn’t quite built up the momentum that yours has but with steady monthly contributions for the next few years I expect the same snowball effect. Love your articles DM!

  89. They definitely do add up for sure! This month im on target to have my largest dividend payout yet at ~$50 ๐Ÿ™‚ I also like to compare my dividend payouts to hours of minimum wage work as well; so after what would have been income tax deductions etc, that would be about 5hours of work for free! ๐Ÿ™‚

  90. Jason,
    Good thing you moved back to Michigan. Your snowball would have melted down in Florida!
    KeithX

  91. Hi again from argentina. Can you analize coca cola noe that the price in down,. Its time to buy or not now
    thanks

  92. maurice,

    Appreciate the support! Thanks so much.

    Stick with it. You may not be where I am right now, but you will be one day. And sooner or later that thing will take on a life of its own. ๐Ÿ™‚

    Best wishes.

  93. KeithX,

    No kidding!

    Although, for somewhere so warm it was pretty conducive to building a snowball. I’ll always hold Florida in high regard. ๐Ÿ™‚

    But I reckon I’ll power through the rest of the process up here where the temperature is a bit kinder to snowballs.

    Hope all is well down in the metro area.

    Cheers!

  94. Great post DM,

    Your snowball analogy does a great job of describing the power of compounding. To be able to have money make more money is genius. Makes sense that Einstein called compounding the most powerful force in the universe. You just need time to get the momo going. You’ve got an edge with your age. Others , not so much. I

    I wish I had known about the possibilities of dividend growth investing. When I started saving in my 401K, it was just a retirement account that I couldn’t touch until I was 65.. At 20 something, it didn’t matter. Now, at 40 something, suffering from job burnout, I wish I had the your foresight to build a passive income stream early so I can change careers or start my own biz.

    Good luck with the snowball! Hope it turns into an avalanche(but in a nice way)

  95. Very nice article, I love the snowball analogy. That’s one of the beauties of DG investing, it is something that develops a life of its own after a while. You just have to cultivate your portfolio and you will eventually reap the rewards.

    Speaking of dividend increases, I think NSC just raised its dividend by 5.5%. I was hoping for a higher increase given their fantastic stock performance, but at least is better than the last increase they had. That’s where other, awesome companies like TGT come in: they super charge your growth with a 20% increase. You win some here, and then you win some more over there, but in the end the snowball will keep rolling down the mountain.

  96. Great read, Compounding is simply amazing!!! GE looks like the buy here. DM have you looked @ PGH yet…… Looks like a great setup. Just ones opinion, good luck.

  97. Arizona Trader,

    It’s still not too late for you, my friend. Judging by the fact that you have a blog dedicated to stock trading, I’m guessing you’re far ahead of most your age.

    I don’t trade, and don’t know much about it. But it’s definitely not too late to build a self-propelling snowball for yourself. You’d have to be a bit aggressive, but the end result is worth the hard work.

    Best of luck. ๐Ÿ™‚

    Cheers!

  98. Spoonman,

    Yeah, NSC just gave us a nice little raise. It wasn’t fantastic by itself, but it’s almost 10% more YOY. Raising it every couple of quarters is nice, indeed. NSC has been a fantastic holding for me. Wish I would have scooped up even more, or bought UNP and/or CSX around that same time. Can’t win them all, though.

    And TGT was a blockbuster raise. I’m anxious to see if things turn around in Canada for them.

    Let’s keep our snowballs moving! ๐Ÿ™‚

    Thanks for stopping by.

    Best regards.

  99. j-harr,

    GE looks good here. I’m considering adding to my position next month. I may add more to DE as well.

    I took a cursory look at PGH right now. Rough stock chart. Combine that with negative earnings and a dividend cut and I don’t think this one is for me.

    Cheers!

  100. DM,

    I have been watching the snowball move a little lately. Been kind of stuck and not able to afford as much lately and at the same time trying to save some money for school/ buying a house or condo possibly.

    I want to drink hot cocoa and skip scraping the ice and snow off my windows at 7AM to go to work during the bitter cold MI winter.

  101. i am from Germany and I experience the same issues as well. Germany has very comfortable tax agreements f.e. with the US, Uk and the Netherlands. Stocks from Italy, France, Belgium and the Nordic country however are tax-wise really a pain in the a**. It is a shame that there a no (or complicated) tax agreements between several EU members and that it’s better to buy US stocks than stocks from my neighbour country. I’d love to own some french or belgium stocks but because of the withholding tax they are a no-go.

    Usually i am quite a convinced European but it annoys me that the EU is not able to construct a european tax law while they stick their noses in almost every other aspect of daily life. ๐Ÿ™‚

  102. No More Waffles,

    As far as I’m informed, the types of treaties that the Netherlands has with most other first-world countries, is that any foreign witheld taxes can be recouped. So that means I only pay the dutch 15% dividend tax at the end of the line. I believe there’s a fair amount of paperwork involved in getting the foreign witheld dividend tax back, although a lot of brokers let you fill up a basic form upon opening your account, after which this process should be mostly automated.

    And yes, the 15% witheld Dutch dividend tax is deductible from income taxes. Is this also the case in Belgium?

  103. Thanks for the reply. I wasn’t actually implying that you were claiming or promising a constant ROR, I just generally like to disagree with a too-positive outlook on anything (I’m Finnish, heh…) I am an absolute amateur and actually I have no idea what I’m doing investment-wise, rather investing in stocks is right now just something fun to do. My portfolio is less than 20kโ‚ฌ with unrealized losses of about 1,7kโ‚ฌ so you can see that I’m just playing right now. If I ever get to +100k things will definitely get more real, let’s see what happens…
    Anyway, thanks to you I now have some dividend stocks too, let’s see how it pays off…

  104. I am continuously amazed by your ability to say exactly the same thing over and over again. Each article offers no new knowledge, no new insight. Growth compounds. Astounding. Seven more posts on this, STAT.

  105. Denny,

    I am continuously amazed that someone such as yourself would continue to stop by if I offer no value. Stop by for another sarcastic comment. STAT.

    Cheers.

  106. SWAN,

    I’m with you, my friend. I remember getting up at 5 in the morning in the winter and scraping off my windshield when it was dark and below 20 degrees. Then I would let my car warm up while I ate breakfast, before driving off to the dealership. That definitely was not fun. I’d rather let my money go out and work for me. Doesn’t require any of that windshield scraping. ๐Ÿ™‚

    Best of luck with the house shopping! Thanks for stopping by.

    Take care!

  107. DM, Keep your eye on PGH. Nice 6.5% yield with FFO growing for the next five(5) years, what’s not to like.

  108. Apparently someone above doesn’t get the idea behind motivation and is confused by offering up sarcasm. Aside from that comment, your snowball approach reminded me of the book “Snowball” about Warren Buffett. Have you read it yet? If not, you should take the time to read it, it is a very interesting look at his life from a small child. Thanks again for the motivation and repeated exposure to positive reinforcements!

  109. Lol, I think he still made the $.005 or whatever the impressions rate is from the Ad people…

  110. I’m generally bearish on utilities for two reasons:

    1) short term, I think they are overbought, and there are other stocks (like T, VZ) that offer high yield and probably have a better strategic asset base than a utility company
    2) long term, water/power/gas utilities will require huge investments in order to comply with the laws/regulations/new efficiencies needed to support growing populations and aging infrastructures, while being limited on how much they can fund the growth/investment through price increases

    In any case, a solid buy, with decent payouts, but I’m skeptical on the long term proposition.

    I hope I’m wrong, though, for your sake!

  111. j-harr,

    I responded to you in the earlier comment. Are we looking at the same company? PGH pulls up Pengrowth Energy Corp., which is definitely not a stock I’d ever be interested in.

    Cheers!

  112. DP,

    That’s a fantastic book. I actually have it listed in my recommended reading:

    https://www.dividendmantra.com/getting-started/

    What I found most interesting about the book was all of the stories that point out how frugal he was. Like not wanting to dry clean his clothes, wearing stained ties, using a dresser drawer for a crib. He was pretty hardcore back in the day. It was a great read. I may even end up re-reading it at some point here pretty soon. Really good stuff.

    Thanks for stopping by! And I’ll keep doing my best to motivate. ๐Ÿ™‚

    Best wishes.

  113. j-harr,

    I just took a quick look. They’ve cut the dividend twice since late 2009 from what I can see. And earnings are negative. I see you using FFO, but this isn’t a REIT. I wish you luck if you invest here, but this isn’t the type of company I’d be interested in.

    Appreciate the suggestion, though! ๐Ÿ™‚

    Cheers.

  114. Thanks for the reply, Pengrowth converted from an income trust several years back, therefore have 3.7billion in tax pools.(probably won’t pay taxes till 2017.) That’s why the FFO. With the lindberg project to come on line the 4th Qtr FFO in 2018 are quoted @ $2.38. A spec keeps me interested in the market, especially when stocks have become so expensive.

    keep up the good work!

  115. I guess I should clarify something, so as to avoid the appearance of being a math idiot….

    First, a 5% growth rate does not more than double income in 10 years. I should have stated that AFTER I roll my 401K into an IRA and then buy DGI stocks, the 5% growth in divvy’s will more than double our current dividend income in 10 years. That of course is a very conservative estimate. With any luck at all, our income will be at least triple. I knew what I was trying to say previously. I just didn’t say it very well :-).

  116. Hey DM,

    your articles are awesome! I really like the Snowball story and my wife and I try to build up a big one. And now that the snowball becomes larger acceleration is boosted by gravity. Keep on going. I like your work. There isn’t anything comparable here in Germany.

    Best regards,
    Ralf

    P.s.: Ever considered german Munich Re a buy? It is also a holding of Warren Buffett and has an appealing dividend history and dividend yield.

  117. Your first few articles (of yours that I read, not necessarily chronologically) were quite interesting. DGI was new and I was curious. Then nothing new happened. I mean, sure, the real life anecdotes relating how a working man can use frugality to achieve a modicum of financial stability were entertaining and they did add value. I just don’t know how you can post another story about the value of compounding and claim victory. You’ve done articles on tax implications, the technicals of DGI, lessons learned. Those are all good stuff. This, not so much.

    Be better.

  118. Ralf,

    Thanks for the support and kind words. I really appreciate it. I’m glad you enjoy the blog. ๐Ÿ™‚

    I don’t believe Munich Re trades on a US exchange, so I’ve never really considered it. I won’t buy stocks on foreign exchanges for a number of reasons, but I am considering expanding my insurance holdings. Right now, TRV would be among my top picks there. CB is another great insurer.

    Please stay in touch.

    Cheers!

  119. Denny,

    Fair enough. I think most people enjoy my work, but not all will or have to.

    But consider that DGI was once new to you. And there are new investors sprouting up every day. I write for everyone. I write for new investors, old investors, as well as myself. This may be boring to you, but it’s not to many others. You have the option to tune out, if necessary. Frankly, I find all of this stuff fascinating. Making money is never boring to me.

    And also consider that I don’t believe I’ve ever discussed how dividend raises can actually be compared to new capital you didn’t have to invest. I like to take old concepts (compounding) and put a new spin on them. Again, if you don’t enjoy that you’re free to explore other posts or other websites.

    Best regards.

  120. I think the basis of the snowball analogy is pounding the mentality to invest for tomorrow. Don’t try to get rich quick, don’t chase dividend yield itself. Seek a good foundation that will hold up your investments for the next 50 years!

  121. Great article, really enjoyed reading it. I’m making my own snowball as well and hoping that one day it will roll down the hill on its own. ๐Ÿ™‚

  122. WE,

    I’m with you. Set up a great foundation and that thing will roll for a long time. Equally so, if you can start out nice and early you give yourself a nice, long hill with which to work. ๐Ÿ™‚

    Best regards.

  123. Tawcan,

    Thanks for stopping by! Glad you enjoyed the post. ๐Ÿ™‚

    Glad to hear that. Your future self will definitely thank the you of today. Keep it rolling!

    Cheers.

  124. Thanks, DM. What an awesome way to discuss the effects of compounding. I love how you say “that’s like investing X amount of my own money, but not having to.” It is a refreshing new take on that topic. I keep my own spreadsheet of dividend increases and so far in 2014 have received a total of $136.39, or like investing around $4500 of my own money but without having to.

    I’m trying to get friends at work to invest more in dividend paying stocks for the longterm rather than focusing on the latest stock fads. While I have gotten a few to invest in high quality companies like Coca Cola and Visa, I bet your snowball analogy will make them see the power of those dividends. Thanks!

  125. TwoInvesting,

    That’s fantastic right there. You’re basically $4500 ahead of the game without any work on your part. How cool is that??

    I wish you luck with spreading the message to co-workers and friends. I know I’ve tried in the past and didn’t really get anywhere. But this is my platform, and those interested will seek me out. ๐Ÿ™‚

    Thanks for stopping by!

    Cheers.

  126. Bart,

    You’re right about the paperwork, it works the same way in Belgium. The main difference is that we can only recover the foreign taxes up until 15%. For example, 30% French withholding taxes becomes 15%. On top of that we have the 25% Belgian dividend tax, essentially making it a total 36.25%. This percentage is not deductible from income taxes.

    You can see why I’m hesitant to start my own dividend growth portfolio, even though I think it’s a great strategy!

  127. Thanks for the snowball, Jason.

    We here in Europe it is harder to get it rolling downhill. the taxman quits 30 % on any dividends paid by US companies. then we can deduct something from the tax (stiil must go figure how we do it).

    Just read something interesting about Medtronic and those US companies investing in foreign companies.

    http://seekingalpha.com/article/2334265-surprise-the-real-costs-of-inversions-are-paid-by-ordinary-shareholders?ifp=0

    Have a nice summer end !

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  129. Aspenhawk,

    I read that article too over at DGI’s blog. I already knew of the tax situation, though. But it does suck. You’re kind of between a rock and a hard place with that one. Either you sell, or you’re forced to sell by taking stock in the new company. If the shares are in a taxable account you’ll owe taxes either way. A rather unfortunate way to do business, but what can you do?

    I hope you have a great end of summer over there as well! It’s been glorious over here. ๐Ÿ™‚

    Take care.

  130. Hi Jason,

    I am following and enjoying your blog as I am trying to achieving FI. The dividend growth is one of my driver but at the same time, I am trying to benefits from the market up-down and for the last 4 years, I must say I have been very successful, ok the market conditions were favorable.

    In 4 years, I made 83K in dividends and 165K in market buy/sell, which make me very happy ๐Ÿ™‚

    Now with the market at sky high level, I pull-out cash around 23% of my portfolio, hoping for a correction to buy more dividend stock.

    Bye
    Steve

  131. Steve,

    Sounds like you’ve done really well for yourself! Congrats. Seems like your snowball is rolling downhill at a rather rapid pace now. ๐Ÿ™‚

    I don’t plan on liquidating anything for capital. I plan to stick to my same plan as always, and buy what I feel is most attractive with whatever current capital I’m able to amass.

    Best of luck. And keep up the great work.

    Take care.

  132. Jason, a little off topic, but I’m wondering if you have any opinion on dividend contender XLNX? . last report they beat EPS by 1 cent, but missed revenue and gave soft guidance….thus stock dropped almost 20%,
    On the other hand XLNX increased dividends for 12 consecutive years with 5 year average 12% (most recent 16%) and now yielding 2.8%.
    Profit Margin 27%, Total Debt/Equity 0.55, P/E 18
    The consensus recommendation is 2.35 or Outperform As of July 24, 2014 with 40 of 40 total analysts reporting.
    This is an upward trend from the previous rating of Hold (2.52) As of January 30, 2013.

  133. gibor,

    The fundamentals look solid. The FCF is rather strong, and comfortably covers the dividend and then some. However, it’s the qualitative side that worries me. I’m personally quite conservative when it comes to tech, and prefer only big tech companies with diverse operations. I’m only invested in IBM in this space, and you could also consider DLR a quasi-tech play. But I think I’m pretty much “teched-out” with that.

    That being said, the fundamentals look really, really solid.

    Best of luck!

    Cheers.

  134. I went with MCD this month. They’re fascinating, because they look like a restaurant company, but they’re secretly a real estate company.

  135. Sorry I’m late to this conversation, but I would definitely recommend looking into p2p lending, Jason. It’s a great way to diversify into other investment vehicles without putting your money into anything “exotic” (short sales, futures, mortgage-backed securities, and whatever else is out there than you need an MBA in Finance to understand). With a $3000 investment earlier this year into Prosper (that’s all I ever put in), I made $115 last month.

    There are risks to it, naturally, and I’d be lying if I tried to pass this off as if it were an FDIC insured bank CD. It’s riskier than dividend stock investing because you are putting all your money into consumer loans, and it’s “regular people” that are the ones borrowing your money (I don’t think I could have chosen a phrase that made me sound more like I was born with a silver spoon in my mouth). But the risks are very manageable and very reasonable; like with stock investing, if one takes their time to do the research and has a very well diversified loan portfolio, you can make anywhere from 6-10% annual returns pretty comfortably. A lot of people chase yield (just like in dividend investing!) and go only for the riskier loans with the higher interest rate, but my strategy is to aim for loans across the entire spectrum. Since dividend investing is safer, though, I’d recommend only having p2p lending as a small part of your overall portfolio. I’m deciding whether to add a few ETFs to mine.

    P2p isn’t for everybody, but I think a lot of the anxiousness surrounding it comes from a misunderstand of what it is and how it works. After all, if you say it out loud it sounds like a Nigerian Prince scam. You’re technically loaning money to strangers over the Internet, after all. But in actuality, this isn’t Forex trading or active “hot penny stock” day trading; the loans being made are the same unsecured personal loans that you will find in any bank, and the consequences to the borrower for not repaying them are the same. As long as you diversify, keep up with your portfolio regularly, and know what’s going on in the p2p world, you should make good returns with minimal risk. It’s actually JUST like dividend stock investing.

  136. Joey Batz,

    Thanks for sharing your experience!

    P2P lending has definitely become a lot more popular just in the last few years. I’m amazed at the growth of it. It actually does make me wonder where banking is going, and how that’s going to affect some of the investments I have in banks. But I suppose if banks start to notice the sting then I’ll have no choice but to lend through P2P instead of collecting the dividends from the likes of WFC.

    I hear you on the diversification. I agree that this could be a great way to diversify one’s income. I’ll definitely have to strongly look at adding it to the mix at some point here.

    I’m glad to hear that you’ve had some pretty strong results thus far. 6-10% annual returns is pretty impressive. Although, I do wonder how that would look in another major economic recession. I can see how some people might sacrifice these small loans first before the electric bill or mortgage in the event of an economic pullback.

    It’s really wonderful that we have all these options to make money. There are people in other countries that would love to have all of our options. ๐Ÿ™‚

    Thanks again!

    Cheers.

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  138. Hi Jason,

    After reading some of your articles, I was totally changed.

    I was a buy-and-hold investor who deployed a similar strategy like yours. However, there are three major differences.

    1. I did not think like an owner. I went to McDonaldโ€™s and bought a hamburger and pretended I was loyal to my company. Now, I think it is a quite embarrassing mid-set like a kid went to baby boss play ground. I have to believe there are real workers and they are sell real thing to real customers. I did own a part of this real business.

    2. I did not act like an owner. A real owner runs his business by managing right and manageable indicators. I did not find out real key performance indicator for my business. My portfolio is my business and there are 3 major factors: Share price X Nos of share + dividends. Nos of share and dividends are manageable factors which I did not really pay attention to. You set a very clear and correct strategic objective: GROWING DIVIDENDS. This objective is very useful for me.

    3. I did not enjoy the journey. I had no fun during the process of rolling the snowball. I feel boring and sometimes a little bit painful when I was waiting my portfolio getting bigger. Your BB gun idea makes me feel the process is fun and enjoyable.

    I am going to run my own Snowball Corporation with different mind-set. And I decide to get started my blog to record down my journey. I believe it will be fun!

    A famous Taiwan author said: If you tell people your dream but nobody laughs at you, this dream is worthless to pursue.

    So, I would like to tell you that I will grow my Snowball Corporation to a level whichโ€™s scale could compare to public traded companies in Taiwan. Taiwan public traded companies are much smaller but still very big. It would take me maybe 20-30 years.

    Thank you, Jason. I left a message here to you to express my gratitude for those I learned from you.

    Cheers,

    Joseph

  139. Joseph,

    Thanks so much for writing and sharing! Means a lot to me. ๐Ÿ™‚

    I’m really glad that your eyes were opened up a bit by reading some of my posts. I try to make these concepts easy to read and understand, and that’s because I have a desire to see people change their realities. I truly believe that financial independence is attainable for just about anyone out there who wants it and is willing to work hard for it. Great wealth comes not to those who wish for it, but those who work for it.

    I’m rooting for you and your success. Documenting your journey via a blog will make it a lot more interesting and fun. And I do hope you’re able to grow your portfolio to the level of a public company’s value at some point. That would be fantastic!

    Best of luck. ๐Ÿ™‚

    Cheers!

  140. Hi Jason,
    I was born 1982, I live in italy, i want to start my snowball… i’m only 65 part of coca-cola, and budget for invest for star my snowball 18,000 $, what action do you recommended for start?
    Your blog is best!! ๐Ÿ™‚

    Daniele

  141. Daniele,

    Thanks for the kind words. Glad you’re enjoy the blog thus far. Means a lot to me. ๐Ÿ™‚

    As far as just starting out, you may want to check out this article:

    https://www.dividendmantra.com/2014/05/if-i-were-starting-all-over-again/

    And I would recommend all of the reading material here:

    https://www.dividendmantra.com/getting-started/

    Knowledge is power. Don’t forget that. Make sure you’re completely comfortable and confident with what you’re doing before you make any big moves. Stocks aren’t going anywhere.

    Hope that helps!

    Best wishes.

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