DRIP Calculator | Dividend Reinvestment & Compound Growth
Project dividend reinvestment plan (DRIP) growth over time. Enter shares, price, and yield; model dividend growth and price appreciation; see year-by-year shares accumulated, income, and total portfolio value with yield-on-cost progression.
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What Is the DRIP Calculator | Dividend Reinvestment & Compound Growth?
A Dividend Reinvestment Plan (DRIP) automatically uses dividend income to purchase additional shares instead of paying cash. Over decades, this creates a compounding loop: more shares produce more dividends, which purchase more shares. This calculator models that full compounding process year by year, including dividend growth and price appreciation.
- ›Shares accumulation, each year's dividends are divided by the current share price to calculate how many new shares are added through reinvestment.
- ›Dividend growth rate, models a company that grows its dividend over time. The S&P 500 Dividend Aristocrats have grown dividends by 5–8% annually for 25+ years.
- ›Yield on cost (YOC), shows what percentage of your original investment you receive annually as dividends, regardless of current price. High YOC reveals the power of early investing.
- ›Year-by-year table, shows shares owned, price, dividend income, new shares added, and portfolio value for every year of the investment horizon.
- ›Growth chart, plots portfolio value and annual dividend income on the same chart to visualize the divergence as compounding accelerates.
Formula
Annual Dividend Income
Dividend Income = Shares × Annual Dividend per Share
Annual Div/Share = Price × Yield% / 100
New Shares from Reinvestment
New Shares = Dividend Income / Current Price
Price and Dividend Growth (each year)
Priceₜ = Priceₜ₋₁ × (1 + Price Growth Rate)
Div/Shareₜ = Div/Shareₜ₋₁ × (1 + Dividend Growth Rate)
Yield on Cost (YOC)
YOC = (Shares × Current Div/Share) / Initial Investment × 100
YOC shows what % of your original investment you receive annually as dividends.
How to Use
- 1
Enter shares owned, current share price, and annual dividend yield.
- 2
Set the expected annual dividend growth rate and share price growth rate.
- 3
Choose your investment horizon in years (up to 50).
- 4
Click Calculate to see final portfolio value, annual dividend income, yield on cost, and year-by-year table.
- 5
Compare scenarios by changing growth rates.
- 1Enter your position: Input shares owned and current share price. Or use one of the three preset stock profiles.
- 2Set yield and growth rates: Annual dividend yield is the current payout as a % of price. Dividend growth rate models how fast the company increases its dividend. Price growth rate models capital appreciation.
- 3Set your horizon: Enter 1–50 years. The longer the horizon, the more dramatic the compounding effect.
- 4Calculate: Review the final portfolio value, annual dividend income, yield on cost, and total return. The year-by-year table shows every step of the compounding process.
- 5Compare scenarios: Change the dividend growth rate or price growth to model optimistic vs. conservative scenarios side by side.
Example Calculation
Example: 100 shares at $50, 3% yield, 5% div growth, 7% price growth, 20 years
Initial investment: 100 × $50 = $5,000
Year 1: Price $53.50 | Div/share $1.575 | Div income $157.50 | New shares 2.944
Year 5: Price $70.13 | Div income $259.43 | Shares 116.8 | Portfolio $8,191
Year 10: Shares 141.3 | Portfolio $14,053 | Annual dividend $665 | YOC 13.3%
Year 20: Shares 204.7 | Portfolio $51,742 | Annual dividend $3,231 | YOC 64.6%
Total dividends received over 20 years: $23,840
Total return (capital gain + dividends): $70,582 (+1,412%)
Understanding DRIP | Dividend Reinvestment & Compound Growth
The Dividend Snowball Effect
DRIP investing earns its reputation from the "dividend snowball" phenomenon. In the early years, reinvestment adds a modest number of new shares. But as the share count grows, the dividend income per period also grows, which buys more new shares, which generates more income. The effect is self-reinforcing and accelerates in the later years of a long holding period. A portfolio that grows slowly in the first decade often doubles in value in a fraction of that time during decade two or three.
Yield on Cost vs Current Yield
Current yield is what a new buyer earns today: annual dividend / current price. Yield on cost (YOC) is what a long-term holder earns on their original purchase price. These diverge significantly over time. An investor who bought Realty Income (O) in 2000 at $10 per share might have a YOC exceeding 25%, even though new buyers today see a 5% current yield. YOC is one reason long-term dividend investors resist selling quality compounders even when they look expensive on current yield metrics.
DRIP vs Selling and Reinvesting
- ›Transaction costs: DRIP reinvestment is typically commission-free. Manual reinvestment incurs a trade cost each quarter.
- ›Timing: DRIP buys on the dividend payment date, not at an optimal price. Dollar-cost averaging across many dates smooths entry points over years.
- ›Concentration: DRIP reinvests in the same stock. If you want to rebalance into different positions, manual reinvestment gives more flexibility.
- ›Fractional shares: DRIP handles fractional shares seamlessly, compounding down to the cent.
Frequently Asked Questions
What is yield on cost and why does it grow over time?
YOC = (Shares × Current Div/Share) / Initial Investment. It grows because both share count (from DRIP) and dividend per share increase.
- ›3% initial yield + 6% annual dividend growth → 10% YOC in ~14 years.
- ›5% initial yield + 8% annual dividend growth → 20% YOC in ~15 years.
- ›YOC is independent of the current share price; it shows return relative to your cost basis.
- ›Long-term dividend investors track YOC to measure the quality of early purchases.
How is DRIP different from simply buying more shares?
DRIP compounding works best when: (1) fractional shares are used, (2) reinvestment is automatic and instant, and (3) no trading costs are incurred.
- ›Most modern brokers offer commission-free DRIP with fractional shares.
- ›Some company-direct DRIPs offer 3–5% discount to market price on reinvested shares.
- ›Automatic reinvestment removes behavioral bias — dividends cannot be spent.
What is a realistic dividend growth rate?
- ›S&P 500 Dividend Aristocrats (25+ year streak): 5–8% historically
- ›Utilities (ED, SO, DUK): 3–5% per year
- ›Consumer staples (KO, PG, JNJ): 5–7% per year
- ›REITs (O, VNQ): 2–4% per year
- ›Technology dividend growers (MSFT, AAPL): 8–15% per year
- ›A 5% rate is a conservative baseline for diversified portfolios.
Are DRIP taxes considered in this calculator?
Results are pre-tax. Tax implications depend on account type:
- ›Taxable account: dividends taxed in year received (even if reinvested), at qualified dividend rate (0/15/20%).
- ›Traditional IRA / 401k: tax-deferred; taxes only apply on withdrawal.
- ›Roth IRA: no tax on dividends or growth; ideal for DRIP.
- ›Track your cost basis for each reinvested lot for capital gains purposes when you eventually sell.
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