Dividend Reinvestment (DRIP) Calculator
A dividend reinvestment plan (DRIP) automatically uses each dividend payment to purchase additional shares of the same stock or fund, accelerating compound growth by putting your income back to work immediately rather than letting it sit in cash. Over decades, the difference between reinvesting dividends and taking them as cash can be enormous, because each reinvested dividend buys more shares that themselves pay future dividends, creating compounding on top of compounding. This calculator shows both scenarios side by side so you can see exactly how much extra wealth reinvesting creates, based on your initial investment, the stock or fund's dividend yield, the expected annual price growth, and your time horizon. Enter your starting balance, the dividend yield, the expected annual price appreciation, and the number of years you plan to reinvest, and the calculator displays the ending balance if you reinvest all dividends versus the balance if you took dividends as cash (and spent them). The gap between the two is the dollar value of reinvestment, and over 20 or 30 years it is often surprisingly large. Dividend reinvestment is particularly powerful inside a tax-advantaged account like an IRA, where reinvested dividends grow tax-free or tax-deferred and there are no tax consequences to reinvesting; in a taxable account, reinvested dividends are still taxed in the year received even though you reinvest them, so factor that in. The calculator assumes a constant dividend yield and growth rate, while real yields fluctuate with company performance and share price, so treat the projection as illustrative. For long-term income investors, the takeaway is clear: reinvesting dividends is one of the simplest, most automatic ways to turn a stream of income into a larger stream of income over time.
Dividend Reinvestment (DRIP) Calculator
See how reinvesting dividends (DRIP) compounds your wealth versus taking them as cash.
Balance with dividend reinvestment
$38,697
7.0% total annual return
Balance taking dividends as cash
$27,911
Extra from reinvesting
$10,786
A dividend reinvestment plan (DRIP) automatically buys more shares with each dividend payment, accelerating compound growth. Over decades the difference vs. taking dividends as cash can be substantial.
How to Use This Calculator
- 1Enter your initial investment amount.
- 2Enter the stock or fund's dividend yield.
- 3Enter the expected annual price growth.
- 4Enter the number of years you plan to reinvest.
- 5Compare the reinvested balance against taking dividends as cash.
Why It Helps
- ✓Quantifies the long-term benefit of dividend reinvestment.
- ✓Shows compounding on top of compounding.
- ✓Helps you decide between DRIP and cash dividends.
- ✓Works for individual dividend stocks or funds.
About This Calculator
A dividend reinvestment plan (DRIP) automatically uses each dividend payment to purchase additional shares of the same stock or fund, accelerating compound growth by putting your income back to work immediately rather than letting it sit in cash. Over decades, the difference between reinvesting dividends and taking them as cash can be enormous, because each reinvested dividend buys more shares that themselves pay future dividends, creating compounding on top of compounding. This calculator shows both scenarios side by side so you can see exactly how much extra wealth reinvesting creates, based on your initial investment, the stock or fund's dividend yield, the expected annual price growth, and your time horizon. Enter your starting balance, the dividend yield, the expected annual price appreciation, and the number of years you plan to reinvest, and the calculator displays the ending balance if you reinvest all dividends versus the balance if you took dividends as cash (and spent them). The gap between the two is the dollar value of reinvestment, and over 20 or 30 years it is often surprisingly large. Dividend reinvestment is particularly powerful inside a tax-advantaged account like an IRA, where reinvested dividends grow tax-free or tax-deferred and there are no tax consequences to reinvesting; in a taxable account, reinvested dividends are still taxed in the year received even though you reinvest them, so factor that in. The calculator assumes a constant dividend yield and growth rate, while real yields fluctuate with company performance and share price, so treat the projection as illustrative. For long-term income investors, the takeaway is clear: reinvesting dividends is one of the simplest, most automatic ways to turn a stream of income into a larger stream of income over time.
Disclaimer: This calculator provides estimates for educational purposes only and does not constitute financial, tax, or investment advice. Results depend on assumptions that may not reflect your actual situation.
Frequently Asked Questions
What is a DRIP?
A Dividend Reinvestment Plan automatically uses your dividends to purchase additional shares, often commission-free, accelerating compound growth.
Are reinvested dividends taxed?
Yes, reinvested dividends are generally taxed in the year received (unless in a tax-advantaged account), even though you reinvest them.
Does DRIP work in an IRA?
Yes, and it is even more powerful in a tax-advantaged account because reinvested dividends grow tax-free or tax-deferred.
What if the dividend yield changes over time?
This calculator assumes a constant yield. Real yields fluctuate with company performance and stock price.
Is dividend reinvestment always better?
Over long horizons reinvesting usually wins, but if you need the income now or the stock is overvalued, taking cash may make sense.
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Written by
James MitchellSenior Financial Analyst & Personal Finance Expert
Certified Financial Planner (CFP) • MBA in Finance, University of Chicago Booth School of Business