Dividend Reinvestment (DRIP)
Project share count and value when reinvesting dividends.
Overview
A dividend reinvestment (DRIP) calculator projects how a stock position grows when every dividend is plowed back into more shares of the same stock rather than taken as cash. Reinvestment turns the holding into a self-compounding asset: each new share earns its own dividends, which buy still more shares. Over decades, DRIPs are responsible for the majority of total return on broad equity indices — the cumulative effect of compounding cash distributions dwarfs the price-only chart.
This tool models a simplified DRIP. It assumes a constant dividend yield, a constant share-price growth rate, and that fractional shares are allowed (most brokers permit them on automated reinvestment plans). It deliberately ignores taxes on dividends, dividend cuts, and stock-specific reinvestment lags. The projection is meant for back-of-the-envelope planning, not as a forecast of any individual security.
How it works
Each compounding period (typically quarterly) the position pays a dividend equal to shares × price × (annual_yield / periods_per_year). That cash buys dividend_cash / price additional shares at the prevailing price, which itself grows by (1 + annual_appreciation)^(1/periods). The new share count becomes the basis for the next period's dividend. In closed form, total ending value is roughly initial_value × (1 + total_return)^years where total_return = appreciation + yield, but the period-by-period simulation handles changing prices and produces the share count, total dividends received, and yield-on-cost trajectory.
Examples
- $10,000 invested in a stock yielding 3% with 5% annual price appreciation over 20 years, dividends reinvested quarterly, ends near $46,600 — versus about $26,500 with price alone.
- 100 shares at $50 ($5,000) of a stock paying $2.00 annual dividend (4% yield) compounds to roughly 218 shares over 20 years at zero price growth, with the same $50 price — a value near $10,900.
- A position with 1.5% yield and 8% appreciation over 30 years grows from $25,000 to about $314,000 — most of the return is the appreciation, but the yield boosts the final value by tens of thousands.
- A retiree drawing the dividends instead of reinvesting on the first example would end at ~$26,500 with $11,500 in cumulative cash dividends — illustrating the cost of breaking the compound chain.
FAQ
Does this account for taxes on dividends?
No. In a taxable account, qualified dividends are taxed each year, which reduces what gets reinvested.
What yield should I use?
Use the forward yield from the dividend the company is currently paying, divided by today's price. Do not extrapolate trailing yields after big price moves.
Do real DRIPs always allow fractional shares?
Most brokerage DRIPs do; a handful only buy whole shares with the cash leftover sitting until the next dividend.
Is yield on cost a useful metric?
For planning, yes — it shows what your original capital is earning today. For evaluating new investments, market yield is more relevant.
Why does compounding matter so much at long horizons?
Because each reinvested dividend earns dividends of its own. The effect is small in year one and dominant by year twenty-five.