A dividend reinvestment plan automatically uses each dividend payment to buy more shares (often fractional), so future dividends are earned on a growing share count — compounding.

What is yield on cost?

The current annual dividend divided by your original purchase price. With growing dividends it rises over time — here it reaches 12.35% of the original outlay by year 20.

How much difference does reinvesting make?

In the worked example, about $53,486 versus $32,071 + $9,920 cash after 20 years — reinvested dividends buy shares that themselves earn dividends and price growth.

What growth rates are realistic?

Long-run dividend growth for mature dividend payers is often in the 3–7% range; use the company's history and payout ratio as a guide, and be conservative over long horizons.

Does the model include taxes and fees?

No — dividends are reinvested gross, annually, at the year-end price. Taxes on dividends in a taxable account lower the true compounding rate.

Why does the model pay dividends annually?

For simplicity. Quarterly reinvestment compounds slightly faster; the annual model gives a conservative, easy-to-audit projection.

Stocks & Investing

Dividend Reinvestment (DRIP) Calculator

Project dividend income and reinvestment over time from investment, yield, dividend growth and price growth — final value, total dividends and yield on cost.

Dividend reinvestment (DRIP) is using each dividend payment to buy more shares, so future dividends are earned on a growing share count and income compounds.

Final position value

$53,485.78

Final shares: 166.77
Total dividends: $13,415.77
Yield on cost (final year): 12.35%

Annual model, gross of taxes and fees; dividends reinvest at the year-end price.

Worked example

An investor puts $10,000 into a stock at $100 with a 3% dividend yield. Dividends grow 5% a year, the price grows 6% a year, and all dividends are reinvested for 20 years.

Starting position: $10,000 ÷ $100 = 100 shares
Year-1 dividends: 100 × $3.00 = $300, reinvested
After 20 years: 166.77 shares
Final value: $53,485.78
Total dividends received: $13,415.77
Yield on cost (year 20): 12.35%

Reinvesting grows the position to about $53,486 versus $32,071 without reinvestment (plus $9,920 of cash dividends). By year 20 the annual dividend alone is 12.35% of the original investment.

How this is calculated

The simulation runs year by year:

dividendPerShare(t) = price × yield × (1 + divGrowth)^(t−1)
price(t) = price × (1 + priceGrowth)^t
dividends(t) = shares × dividendPerShare(t)

When reinvesting, each year's dividends buy more shares at the year-end price, so the next year's dividends are paid on a larger share count — three compounding engines (dividend growth, price growth and share accumulation) running together.

Yield on cost divides the final year's dividend income by the original investment: the income the position pays relative to what you actually put in.

When to use this calculator

Use this to project what a dividend position becomes over years or decades — with and without reinvestment. The gap between the two is the compounding argument in a single number, and it grows dramatically with the horizon.

It is built for dividend-growth investing decisions: vary the yield, dividend growth and price growth to see which matters most for your horizon (over long periods, dividend growth usually beats starting yield).

The yield-on-cost output shows what patient holding does to income: a 3% yield growing 5% a year pays over 12% of the original cost by year 20. That is the number to check against your income goals.

Common mistakes

Projecting today's high yield with high growth for decades — payout ratios cap how long dividends can outgrow earnings.
Ignoring dividend taxes, which reduce the amount actually reinvested each year in taxable accounts.
Comparing final values across scenarios with different price-growth assumptions and attributing the difference to the dividend.

Frequently asked questions

What is a DRIP?: A dividend reinvestment plan automatically uses each dividend payment to buy more shares (often fractional), so future dividends are earned on a growing share count — compounding.
What is yield on cost?: The current annual dividend divided by your original purchase price. With growing dividends it rises over time — here it reaches 12.35% of the original outlay by year 20.
How much difference does reinvesting make?: In the worked example, about $53,486 versus $32,071 + $9,920 cash after 20 years — reinvested dividends buy shares that themselves earn dividends and price growth.
What growth rates are realistic?: Long-run dividend growth for mature dividend payers is often in the 3–7% range; use the company's history and payout ratio as a guide, and be conservative over long horizons.
Does the model include taxes and fees?: No — dividends are reinvested gross, annually, at the year-end price. Taxes on dividends in a taxable account lower the true compounding rate.
Why does the model pay dividends annually?: For simplicity. Quarterly reinvestment compounds slightly faster; the annual model gives a conservative, easy-to-audit projection.