Dividend Reinvestment Calculator
See how reinvesting dividends supercharges your portfolio growth. Enter your investment details to see year-by-year DRIP compounding with dividend growth projections.
How Dividend Reinvestment (DRIP) Works
A Dividend Reinvestment Plan (DRIP) automatically uses your dividend payments to purchase additional shares of the same stock or fund. Instead of receiving cash dividends, you accumulate more shares, which in turn generate their own dividends. This creates a compounding effect similar to compound interest but applied to equity ownership. Over decades, reinvested dividends can account for more than half of total stock market returns. For example, $10,000 invested in the S&P 500 in 1960 would be worth about $350,000 with dividends spent — but over $5 million with dividends reinvested. The difference is staggering because each reinvested dividend purchases shares that earn future dividends.
Dividend Growth Investing Strategy
Dividend growth investing focuses on companies that consistently increase their dividend payments year over year. Dividend Aristocrats are S&P 500 companies that have raised dividends for 25+ consecutive years. Dividend Kings have raised dividends for 50+ years. These companies tend to be financially stable with predictable cash flows. A stock yielding 3% today with 7% annual dividend growth will yield 6% on your original cost in 10 years and 12% in 20 years — this is called "yield on cost." The combination of growing dividends and share price appreciation makes dividend growth stocks powerful long-term wealth builders.
DRIP vs Taking Dividends as Cash
Taking dividends as cash provides immediate income, which is useful in retirement or when you need the cash flow. However, reinvesting dividends during your accumulation years dramatically increases your long-term returns. A $50,000 portfolio yielding 3.5% with 5% dividend growth, reinvesting all dividends and adding $500 monthly, can grow to over $400,000 in 20 years — while the same portfolio taking cash dividends might only reach $300,000. The gap widens exponentially over longer periods. Most brokerages offer free DRIP enrollment with no commission on reinvested shares. Consider switching from DRIP to cash dividends only when you need the income stream.