Why use this calculator
Dividend reinvestment (DRIP) harnesses the power of compound growth by automatically buying more shares with your dividend payments. Over long periods, reinvested dividends can account for a significant portion of total returns.
How to use it
Enter your initial investment, the stock or fund's dividend yield, expected annual dividend growth rate, expected price appreciation, and the number of years. Compare the growth with and without dividend reinvestment.
The formula
With DRIP: Each year, Value = (Previous Value + Dividends) x (1 + Price Appreciation). Without DRIP: Value = Previous Value x (1 + Price Appreciation), dividends collected separately.
Worked examples
$10,000 at 3.5% yield, 5% dividend growth, 7% price appreciation, 20 years
DRIP value of approximately $66,000 vs $42,000 without reinvestment
$25,000 at 4% yield, 3% dividend growth, 5% appreciation, 30 years
DRIP creates significant compounding advantage over three decades
When people use it
- Evaluating dividend growth stocks for long-term portfolio building
- Comparing DRIP vs taking dividends as income
- Planning passive income strategies for retirement
- Understanding the compound effect of reinvested dividends
Tips
- DRIP is most powerful with dividend growth stocks that consistently increase payouts
- Many brokerages offer automatic DRIP enrollment at no cost
- Reinvested dividends are still taxable in non-retirement accounts
Questions people ask
- What is DRIP?
- DRIP stands for Dividend Reinvestment Plan. Instead of receiving dividend payments as cash, dividends are automatically used to purchase additional shares of the same stock or fund.
- Should I always use DRIP?
- DRIP is ideal for long-term growth. If you need current income (e.g., in retirement), you may prefer to receive dividends as cash. Also consider tax implications in taxable accounts.
- Does dividend growth matter?
- Yes. Companies that consistently grow their dividends provide an increasing yield on your original investment over time, significantly boosting long-term returns.