Dividend stocks are often thought of as income instruments, and they certainly can be. Many retired investors derive a significant portion of their income from dividends, and there are lots of stocks with excellent track records of consistent dividend payments over decades.
However, dividend stocks can also be excellent compounding instruments, especially for investors who still have many years until they’ll rely on their investments for income. If this describes you, it’s important to learn about the dividend snowball effect and how it can help you build a much larger income stream over time with minimal ongoing effort.
What is the dividend snowball effect?
This post originally appeared at The Motley Fool.