How to use the dividend reinvestment calculator
The calculator runs two versions of the same investment side by side: one where every dividend buys more shares (a DRIP), and one where dividends are paid out as cash and kept to one side. The difference between them is what reinvesting is worth.
- Initial investment and share price. The price sets how many shares you start with. For a fund, use its current price per share.
- Dividend yield. The annual dividend divided by the share price. A quote page or fund factsheet shows it; use the forward yield, based on the latest declared dividend, if you have it.
- Dividend growth and share price growth. Dividend growth is how fast the payment per share rises each year. Look at the last five or ten years of the dividend history and be cautious with the rate. If the two growth rates are equal, the yield stays the same throughout.
- Years and payment frequency. Most US stocks pay quarterly, many funds and some REITs monthly.
- Monthly contribution, if you keep adding money. It goes into both versions, so the comparison stays fair.
- Tax on dividends. In a taxable account, enter your rate on dividends; in an IRA or 401(k), enter 0. Tax is deducted from each dividend before it is reinvested or kept as cash.
The chart shows the two versions over time. The table under it gives each year’s share price, dividend per share, dividends received, shares owned and both values.
How the calculation works
The calculator steps forward one month at a time. On each payment date it pays a dividend on the shares owned at that moment:
New shares (DRIP) = Dividend × (1 − Tax rate) ÷ Share price on the payment dateThe annual dividend per share starts at Share price × Yield and rises by the dividend growth rate at the start of each year. The share price grows smoothly at the price growth rate.
Without a DRIP the share count only changes with your contributions, and the after-tax dividends pile up as cash. The final value of each version is:
Value without DRIP = Shares owned × Final share price + Dividends kept as cashThe cash dividends are assumed to earn nothing while they wait. If you would invest them elsewhere, the gap between the two versions is smaller.
A worked example
You invest $10,000 in a stock at $50 a share with a 3% yield. The dividend grows 5% a year and the share price 5%. Dividends arrive quarterly and are taxed at 15%.
After 20 years, reinvesting has turned the position into $43,449.25. You own 327.51 shares, up from 200.00, and they pay $1,241.41 a year in dividends.
Taking the dividends as cash instead leaves you with $34,964.80: the original shares plus the dividends you set aside. Reinvesting is worth $8,484.45 more, and the annual income is $1,241.41 against $758.09.
Over the period the DRIP version receives $13,290.26 of dividends and pays $1,993.54 of tax on them, even though you never took any of the money out.
Why the gap keeps widening
Each reinvested dividend buys shares that pay their own dividends, and those dividends buy more shares. The effect is small at first and large later:
| Holding period | Value with DRIP | Value without DRIP | Extra from reinvesting |
|---|---|---|---|
| 10 years | $20,844.48 | $19,496.31 | $1,348.17 |
| 20 years | $43,449.25 | $34,964.80 | $8,484.45 |
| 30 years | $90,567.71 | $60,161.33 | $30,406.38 |
Doubling the holding period from 10 to 20 years makes the extra from reinvesting more than six times larger. That is the same compounding that drives any long-term investment, applied to the share count instead of a balance.
Contributions make the absolute numbers much larger. Adding $200 a month takes the DRIP version to $152,625.41 after 20 years, against $133,132.41 without reinvesting.
Tax in a taxable account
In the US, a reinvested dividend is taxed exactly like one paid in cash: in the year you receive it, at qualified dividend rates (0%, 15% or 20% depending on income) or at your ordinary income tax rate if it is non-qualified. Your broker reports it on Form 1099-DIV regardless of what you did with the money. That has two practical consequences.
First, the tax is owed even though no cash reached you. The broker reinvests the full dividend, so the bill, $1,993.54 over 20 years in the example, is paid from other money at tax time; the calculator models this by reinvesting only the after-tax part. In a tax-advantaged account there is no annual tax, and the same investment grows to $47,385.43 instead of $43,449.25.
Second, every reinvestment is a new purchase with its own cost basis. A quarterly DRIP creates four small tax lots a year. Keep the records, or rely on your broker’s cost basis reporting, so that when you sell you are not taxed again on dividends that were already taxed when they were reinvested. Our dividend tax calculator estimates the yearly tax bill on the dividends themselves.
Fractional shares and how DRIPs buy
Most brokerage DRIPs reinvest the full dividend on the payment date and credit fractional shares to several decimal places. Without fractions, a small dividend would sit as cash until it reached the price of a whole share, and part of the compounding would be lost. Company-run plans, administered by a transfer agent, also buy fractions; some offer shares at a small discount to the market price, and in the US that discount is generally taxed as extra dividend income.
Reinvesting has no commission at most US brokers, but it also gives you no control over the price. The shares are bought whatever the market is doing that day. For most long-term investors that is a feature: it works like a small, automatic form of dollar-cost averaging.
What changes the answer most
- Time. The table above shows it: the payoff from reinvesting is weighted heavily to the later years.
- The yield. Higher yields send more money back into shares each year, so the DRIP advantage grows faster.
- Share price growth. A flat share price means every dividend buys more shares. With no price growth, the DRIP version ends with 462.55 shares and pays $1,753.25 a year, though the portfolio is worth only $23,127.34.
- Payment frequency hardly matters. Monthly payments give $43,581.04 and a single yearly payment $42,875.41, against $43,449.25 for quarterly.
What this calculator does not include
The projection assumes a steady yield, smooth dividend growth and a share price that rises at a constant rate. Real stocks do not behave that way:
- Dividend cuts. Companies do reduce or suspend dividends, usually when the share price is already falling.
- Price volatility. Reinvesting during a fall buys more shares cheaply; the order of good and bad years changes the result.
- Fund fees. If you hold a fund, its expense ratio reduces the return. Enter a slightly lower price growth to allow for it.
- Interest on cash dividends. The cash-only version assumes the dividends earn nothing while they wait.
- State tax and changing tax rates. The tax rate is applied as a single flat percentage.
Use the result to compare reinvesting with taking cash under the same assumptions, and try a lower dividend growth rate to see how sensitive the answer is.