DRIP Calculator
See how reinvesting dividends compounds your wealth over time.
Dividend Reinvestment Calculator
DRIP vs. No Reinvestment
DRIP Advantage: $0 extra (0% more)
Year-by-Year Projection
| Year | Shares Owned | Annual Dividend Per Share | Annual Dividend | Compound Frequency | Annual Contribution | Year-End Shares Owned | Year-End Stock Price | New Balance |
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Table of Contents
How DRIP Works
Dividend Reinvestment Plans (DRIP) automatically use your dividend payments to purchase more shares of the same stock, creating a powerful compounding effect.
- Receive dividends - Company pays you dividends based on shares owned.
- Auto-reinvest - Dividends buy fractional shares at current price.
- More shares = more dividends - Your next dividend payment is larger.
- Compound growth - This cycle accelerates over time, creating exponential growth.
The Compound Growth Formula
FV = P × (1 + r)^n + PMT × [((1 + r)^n - 1) / r]
Where:
- FV = Future Value
- P = Principal (initial investment)
- r = Combined return rate (dividends + growth)
- n = Number of years
- PMT = Regular contributions
Frequently Asked Questions
Should I use DRIP or take cash dividends?
If you don't need income now, DRIP is usually better for wealth building. The compounding effect can significantly boost returns over 10+ years. If you need income or want to rebalance, taking cash gives more flexibility.
Are there fees for DRIP?
Most brokerages offer free DRIP with no commissions. Some company-sponsored DRIPs even offer shares at a discount. Check with your broker for specifics.
Do I pay taxes on reinvested dividends?
Yes, reinvested dividends are taxed the same as cash dividends in taxable accounts. The reinvestment is treated as receiving cash then buying shares. Consider tax-advantaged accounts (IRA, 401k) for DRIP.
What is Yield on Cost?
Yield on Cost (YoC) measures your current dividend income relative to your original investment. With dividend growth, your YoC can exceed the current yield, showing the power of long-term dividend investing.
The Power of Dividend Reinvestment
Dividend reinvestment (DRIP) is one of the most powerful wealth-building strategies available to individual investors. By automatically reinvesting dividend payments to purchase additional shares, investors harness the exponential power of compound growth. Historical data shows that dividend reinvestment has accounted for approximately 84% of the S&P 500's total return since 1960.
The mathematics of DRIP are compelling: each reinvested dividend purchases more shares, which then generate additional dividends, which purchase even more shares. This creates a snowball effect that accelerates over time. A $10,000 investment in high-quality dividend stocks with a 4% yield and 6% dividend growth rate can potentially grow to over $100,000 in 25 years through DRIP alone, compared to approximately $40,000 without reinvestment.
Most brokerages offer commission-free DRIP programs, and many companies provide direct stock purchase plans with discounted reinvestment options. For long-term investors not dependent on current income, enabling DRIP is typically the optimal strategy for maximizing total returns. Use this calculator to see how your investments could grow with the power of dividend reinvestment.
Sources
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Investopedia - DRIP Definition
Complete guide to dividend reinvestment plans.
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Schwab - Dividend Reinvestment
Practical guide to setting up automatic dividend reinvestment.
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Hartford Funds - Power of Dividends
Research on long-term dividend compounding effects.