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Stocks and investing

DRIP Calculator

Reinvesting buys shares that pay dividends that buy more shares. Enter the holding to see where that ends, and what taking the cash instead would have given you.

Starting position

Assumptions

Value with reinvestment—
Value without reinvestment—
Shares at the end—
Income in the final year—
Yield on your original cost—

Reinvested once a year, before tax, and assuming the dividend is never cut. All three simplifications flatter the result — in a taxable account the reinvested amount is what remains after tax, and a single cut during a twenty-year run changes the ending figure more than a percentage point of growth does.

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What it simulates

Year by year:

income     = shares × dividend per share
new shares = income ÷ share price

Then the price grows by your assumed rate and the dividend by its own. Repeat.

The compounding runs through the share count, which is what makes it different from ordinary interest. More shares produce more dividends, which buy more shares. The effect is slow for the first decade and then stops being slow.

The comparison is the point

A DRIP projection on its own is unfalsifiable — a large number after twenty years, with nothing to judge it against.

So the second row runs the identical holding with dividends taken as cash: same price growth, same dividend growth, income banked rather than reinvested. The difference between the two is the only part of the result that reinvestment is actually responsible for.

That gap is usually smaller than expected over ten years and larger than expected over thirty. Which is the honest shape of the strategy: it is not a clever trick, it is a slow one, and its whole advantage is being left alone.

Yield on your original cost

The last row is the reason long-term dividend investors keep the habit.

A stock bought at $52.40 paying $2.10 yields 4.0% today. If the dividend grows 6% a year for twenty years, it reaches roughly $6.73 — 12.8% on the price you originally paid, before counting any extra shares reinvestment bought.

That number is genuine and frequently misused. It describes a past purchase, not a current opportunity, and it says nothing about whether the capital now sitting in the position is well placed. It is a good reason to hold; it is not a reason to buy more.

Three assumptions that flatter the result

Stated plainly, because all three run the same direction:

  • No tax. In a taxable account, dividends are taxed before they can be reinvested, so the real reinvested amount is smaller — often by a quarter or more. In a tax-sheltered account the projection is closer to right.
  • The dividend is never cut. Over twenty years, across a single company, that is a strong assumption. One cut partway through changes the ending figure more than a percentage point of growth does.
  • Constant growth rates. Prices and dividends do not grow smoothly, and the order matters — the same average with an early decline finishes lower, for the same reason drawdowns are asymmetric.

Treat the output as the shape of the best case. The compounding calculator carries the same warning for the same reason.

FAQ

How does dividend reinvestment work?

Each dividend buys more shares instead of paying cash. Those shares pay dividends too, so the share count grows on its own. Many brokers and company plans do this automatically and at no commission, often including fractional shares.

Is reinvesting dividends better than taking the cash?

Mathematically it compounds, so over long periods it produces more — provided you would not have spent the cash on something better and the shares remain worth holding. Reinvesting into a declining company simply buys more of a falling asset.

Does this account for tax?

No. In a taxable account dividends are taxed on receipt, so the amount actually reinvested is lower than shown. Inside a tax-sheltered account the projection is much closer to what happens.

What growth rate should I use?

Something you can defend. Historical dividend growth for large mature companies has often run in the mid single digits, and long-run equity price growth similarly. Rates well above that compound into numbers that describe an assumption rather than an outcome.

What is yield on cost after twenty years?

The grown dividend divided by the price you originally paid. At 6% annual dividend growth, a starting yield of 4% becomes roughly 12.8% on cost after twenty years — a measure of how good the original purchase was, not of the current yield available to a new buyer.

This is the plan. What did you actually do?

A calculator tells you the size you should have taken. It cannot tell you the size you took at 2pm after two losers, or how often your stop moved once price went against you. Drop in a statement from MT4/MT5, a broker CSV or a crypto export and see the answer for your own last 90 trades.

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