Dividend Reinvestment Calculator
A DRIP buys more shares with every dividend, and those shares pay dividends of their own. Enter your position and hold period to see how many shares the dividends buy on their own, and how far ahead reinvesting puts you versus taking the cash.
The three engines, and why they are not equal
This model has three growth inputs and they compound very differently.
Share price growth raises the value of what you already own. It does nothing for your income.
Dividend growth raises the payout per share. This is the input most people set too low. A company raising its dividend 6% a year doubles the payout in twelve years — on shares you bought at the original price.
Reinvestment buys more shares, which claim the growing dividend, which buys more shares. This is the only one that feeds itself, and it is why the "Shares bought by dividends alone" output is usually the most striking number on the page.
Try setting dividend growth to 0 and watch the final value. The gap you just opened is the entire reason people prefer dividend growers to high current yielders.
Yield on cost — the number that explains the strategy
Yield on cost divides your final-year dividend income by what you actually invested. Current yield tells you what a new buyer gets today; yield on cost tells you what your specific purchase produces.
Someone who bought at a 3% yield and held through twenty years of 6% dividend growth is collecting close to 10% on their original money — while the stock still quotes a 3% yield to everyone else. That divergence is the whole thesis, and it takes a long hold to appear. It is also why the years input matters more than any other field here.
Where this model simplifies
Taxes. In a taxable account, qualified dividends are taxed in the year received even when reinvested — you owe cash for a distribution you never touched. The tax field applies a flat rate to model that drag. Set it to 0 for an IRA or 401(k), and notice the size of the difference; it is usually the strongest argument for holding dividend payers in a sheltered account.
Steady rates. Real dividends get cut in recessions and real prices do not rise 5% every year on schedule. This calculator answers "what if these averages hold," which is useful for comparing strategies but not a forecast.
Annual compounding. Dividends are modeled once per year. Most US companies pay quarterly, so real reinvestment compounds slightly faster than shown — this estimate is mildly conservative.
Frequently asked questions
Do I pay taxes on reinvested dividends?
In a taxable brokerage account, yes. Dividends are taxable in the year they are paid, whether you take the cash or reinvest it, which means you may owe tax on money you never saw. Qualified dividends are taxed at long-term capital gains rates; ordinary dividends are taxed as income. In an IRA or 401(k) there is no annual tax, which is why the tax field can be set to 0 for those accounts.
What is yield on cost?
It is your final-year dividend income divided by what you originally invested, rather than by the current share price. If a company keeps raising its dividend, your yield on cost climbs every year even though the yield quoted to new buyers stays roughly flat. Over long holds it can reach double digits.
Is a DRIP better than taking dividends in cash?
For long-term accumulation, reinvesting almost always ends with more total value, because the reinvested shares generate their own dividends. Taking cash makes sense when you actually need the income, or when you want to direct the money into a different holding rather than adding to a position that has grown too large.
What dividend growth rate should I assume?
Look at the company's own record over the past five to ten years rather than guessing. Long-standing dividend growers have historically averaged roughly 5–8% annually. High current yields above about 7% often signal a payout that may be cut, so pairing a very high yield with strong assumed growth will produce an unrealistic result.
Does this calculator account for fractional shares?
Yes. Every dividend is converted to shares at the prevailing price with no rounding, which is how most brokerage DRIP programs actually work today. If your broker only buys whole shares, your real result will be slightly lower.