Snowball Effect Investing | Compound Your Wealth Like Warren Buffett

Up to date on Might twenty second, 2025 by Bob Ciura

The snowball impact exhibits the ability of compounding.

If 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 massive outcomes.

In the identical approach, investing in high-quality dividend development shares can generate giant quantities of dividend earnings over lengthy durations of time. That’s as a result of dividend development shares are likely 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 whole 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 perfect dividend development shares ought to think about the Dividend Aristocrats, a bunch of 69 shares within the S&P 500 with 25+ consecutive years of dividend development.

You possibly can obtain an Excel spreadsheet of all 69 Dividend Aristocrats (with metrics that matter akin to dividend yields and price-to-earnings ratios) by clicking the hyperlink under:

This text exhibits learn how to harness the ability of the snowball impact to multiply your wealth and earnings many occasions over.

It additionally contains 5 actual world examples of the ‘snowball impact’ shares which have compounded investor wealth.

Desk of Contents

You possibly can immediately soar to any particular part by clicking on the hyperlinks under:

The Energy of The Snowball Impact

Earlier than we focus on learn how 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 pressure 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’d be among the many richest individuals on the planet by yr 7.

Take into account that compounding is not a get wealthy fast scheme. It takes time – and many it. There are not any investments that compound at 1% a day in the true world.

The inventory market has compounded wealth (adjusting for inflation) at ~7% a yr over the long term. At this charge 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 instance. Warren Buffett is price over $150 billion. Warren Buffett’s wealth comes from the super advantages of the snowball impact via time.

Warren Buffett compounded his wealth via a particular sort of funding.

Buffett invests in:

Shareholder-friendly companies
With robust aggressive benefits
Buying and selling at honest or higher costs

“All there may be to investing is choosing good shares at good occasions and staying with them so long as they continue to be good corporations.”
– Warren Buffett

The following part of this text discusses learn how 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 possibly can 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 robust and sturdy aggressive benefits and shareholder pleasant managements, buying and selling at honest 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 ‘robust and sturdy aggressive benefits and shareholder pleasant administration’ like 50 or extra years of paying rising dividends in a row.

Coca-Cola (considered one of Buffett’s largest investments) is a Dividend King. There are a lot of different well-known shares within the Dividend Kings checklist, together with:

Chances are you’ll learn this and assume: “these companies could have a historical past of success, however isn’t their run over”?

Traders have wasted super sums of cash chasing ‘the brand new scorching inventory’. It’s regular reliable outcomes that result in long-term wealth multiplication.

What would occur in case you had invested in a few of the most well-known Dividend Kings in 1990?

The 7 instance companies under all had 25+ years of consecutive dividend will increase by the top of 1990. They have been well-known, blue-chip shares in 1990.

It didn’t take a genius to purchase and maintain them…

However the outcomes communicate for themselves. 5 examples of the snowball impact in motion are under. All examples assume dividends have been reinvested.

Instance #1: The Coca-Cola Firm (KO)

Coca-Cola compounded investor wealth at 10.4% a yr (together with dividends) from 1991 via 2022. $1 invested in Coca-Cola firstly of 1991 can be price $23.62 by the top of 2022.

Coca-Cola was the biggest soda model in the US in 1990… And had a 98 yr working historical past on the time. It was not a start-up.

Instance #2: Lowe’s Corporations (LOW)

Lowe’s is the second-largest house enchancment retailer in the US, behind solely The Dwelling Depot (HD). In 1991 Lowe’s was one of many largest house enchancment shops in the US. 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 properly…

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 price $379.74 on the finish of 2022.

Instance #3: Procter & Gamble (PG)

Procter & Gamble was simply as well-known in 1990 as it’s right now. 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 carried out properly. The inventory has produced 32-year annualized whole returns of 11.3% a yr. $1 invested in Procter & Gamble firstly of 1991 can be price $31.08 by the top 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 Velocity 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 can be price $32.64 by the top of 2022.

Instance #5: Johnson & Johnson (JNJ)

Johnson & Johnson is likely 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 whole returns of 12.4% a yr for shareholders throughout the 1991 via 2022 time interval. $1 invested in Johnson & Johnson can be price $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 properly established companies with lengthy dividend histories.

However…

What shares would be the subsequent snowball impact compounders?

There’s no have to 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 choosing solely from shares with 25+ years of rising dividends.

Out of those lengthy dividend historical past shares, we are going to display screen for:

A dividend yield above the S&P 500’s 1.3% yield
A price-to-earnings under the S&P 500’s ratio long-term common of 16.1

We’ll then kind these by anticipated whole return. Whole return is the anticipated earnings-per-share development charge, plus the present dividend yield, in addition to the online affect of any constructive or destructive adjustments within the price-to-earnings a number of.

The ten highest anticipated whole return shares with 25+ years of rising dividends, a dividend yield above 1.30%, and a price-to-earnings ratio under 16 (utilizing information from Certain Evaluation), are listed under:

Stepan Co. (SCL) | Anticipated whole return of 21.8%
Becton Dickinson & Co. (BDX) | Anticipated whole return of 19.4%
The Andersons Inc. (ANDE) | Anticipated whole return of 18.6%
Sonoco Merchandise (SON) | Anticipated whole return of 18.4%
PepsiCo Inc. (PEP) | Anticipated whole return of 17.8%
Japanese Bankshares (EBC) | Anticipated whole return of 17.8%
Goal Corp. (TGT) | Anticipated whole return of 16.8%
PPG Industries (PPG) | Anticipated whole return of 15.3%
Farmers & Retailers Bancorp (FMCB) | Anticipated whole return of 15.0%
Tennant Co. (TNC) | Anticipated whole return of 15.0%

The ten shares listed above finest match the factors to finest make the most 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 honest or higher costs will very seemingly produce compound wealth positive factors over time.

Associated: The video under discusses long-term investing and wealth creation.