What the Dividend Snowball Is

The "dividend snowball" is the compounding loop at the heart of dividend-growth investing: your holdings pay dividends, you reinvest those dividends to buy more shares, those new shares pay their own dividends, and the income accelerates. Add regular contributions and companies raising their payouts each year, and a modest starting income can roll into a substantial passive-income stream over a couple of decades. This calculator projects that snowball year by year so you can see the income — not just the portfolio value — grow.

The Three Engines of Growth

Your dividend income grows from three forces, and the calculator lets you set each. Reinvestment (DRIP) turns every dividend into more income-producing shares. New contributions add fresh capital on top. And dividend growth — companies hiking their per-share payouts — lifts the income from shares you already own. Turn off reinvestment and you'll see the difference immediately: the income flattens because the loop is broken and dividends are being spent instead of compounding.

Yield on Cost: Why Patience Pays

Yield on cost is your annual dividend income divided by the total money you actually invested. It starts at roughly your buying yield, but with reinvestment and dividend growth it climbs over time — a portfolio bought at a 4% yield can be paying 8%, 10%, or more on your original cost a couple of decades later, even though its current yield still looks like 4% to a new buyer. That rising yield on cost is the reward for holding through the snowball, and it's the number long-term dividend investors watch most.

Canadian Tax: Where You Hold Matters

Dividends are taxed very differently depending on the account. In a TFSA, Canadian and reinvested dividends grow and can be withdrawn completely tax-free — set the tax rate to 0%. In an RRSP, growth is tax-deferred (also 0% along the way; tax applies on withdrawal). In a non-registered account, eligible Canadian dividends get the dividend tax credit but are still taxable each year, and US dividends face withholding tax — so a tax drag reduces how much gets reinvested. Model your real situation by setting the dividend tax rate accordingly; even a small annual drag compounds into a big difference over 25 years.

Reasonable Assumptions (and Their Limits)

A common Canadian dividend-growth setup is a 3–4% starting yield with 5–7% annual dividend growth and mid-single-digit price appreciation. But these are averages, not guarantees: dividends can be frozen or cut in a downturn, high starting yields sometimes signal risk rather than reward, and this model assumes constant rates and free reinvestment. Treat the projection as a way to compare strategies — DRIP vs no DRIP, more contributions vs higher-yield holdings — rather than a prediction. Pair it with TrackMoola's FIRE Levels and Compound Interest calculators to see how the income stream fits your bigger plan.