Compound Dividend Calculator
See how dividend growth and compounding accelerate wealth over time.
Compound Growth Simulator
Wealth Accumulation Over Time
Yield on Cost Over Time
Your effective yield based on original investment grows as dividends increase:
Wealth Milestones
Table of Contents
The Power of Compound Dividend Growth
Compound growth creates a "snowball effect" where your money grows exponentially over time through three mechanisms:
- Dividend reinvestment - Each dividend payment buys more shares, which generate more dividends.
- Dividend growth - Companies that raise dividends annually give you bigger payments each year on the same shares.
- Price appreciation - Stock prices generally rise over time, increasing your total wealth.
- Regular contributions - Adding money consistently accelerates the compounding effect.
Compound Growth Formulas
FV = P(1+r)^n + PMT × [((1+r)^n - 1) / r]
Yield on Cost (YoC):
YoC = (Current Annual Dividend / Original Cost Basis) × 100
With 7% annual dividend growth, a 3% starting yield becomes 11.6% YoC in 20 years!
Frequently Asked Questions
What's more important: high yield or high dividend growth?
For long time horizons (15+ years), dividend growth typically wins. A 2% yield growing 10% annually will surpass a 5% yield growing 2% annually within ~12 years. For shorter horizons or immediate income needs, higher current yield may be better.
Is 7% dividend growth realistic?
For quality dividend growth stocks, yes. Dividend Aristocrats have averaged 6-10% annual dividend growth over decades. Some sectors (utilities) grow slower (3-5%), while tech dividends can grow 10-15%.
How does inflation affect these projections?
These are nominal returns. With 3% inflation, real returns are ~3-4% lower. However, dividend growth that exceeds inflation protects your purchasing power - a key advantage of dividend growth investing.
What is Yield on Cost and why does it matter?
YoC shows your dividend return based on what you originally paid. It demonstrates the power of dividend growth - even a modest starting yield can become double-digit returns on your original investment over time.
Compound Growth: The Eighth Wonder of the World
Albert Einstein reportedly called compound interest "the eighth wonder of the world," and nowhere is this more evident than in dividend investing. Compound dividend growth combines two powerful forces: the reinvestment of dividends to purchase more shares, and the organic growth of dividend payments from quality companies that increase their payouts over time.
The most successful dividend investors focus on companies with long track records of dividend growth, known as Dividend Aristocrats (25+ years of increases) and Dividend Kings (50+ years). These companies have demonstrated the ability to grow payouts through recessions, market crashes, and economic uncertainty. A portfolio of such stocks can provide both growing income and capital appreciation over decades.
Understanding Yield on Cost (YoC) is crucial for long-term dividend investors. While you might purchase a stock yielding 3%, after years of dividend growth and reinvestment, your effective yield on your original investment could reach 10%, 15%, or even higher. This calculator helps you visualize this powerful wealth-building effect and plan your path to financial independence.
Sources
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Investopedia - Compounding Definition
Comprehensive explanation of compound growth in investing.
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Hartford Funds - Power of Dividends
Research on the role of dividends in long-term returns.
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ProShares - Dividend Aristocrats Research
Historical data on dividend growth stocks performance.