A dividend reinvestment plan (DRIP) automatically uses each dividend to buy more shares. Those new shares pay their own dividends, which buy still more shares — compounding in its purest form. This calculator compares reinvesting with taking dividends as cash so you can see how much the choice matters over time.
How this calculator works
Your initial investment and monthly additions buy shares at the current price, which grows at your chosen annual rate.
Each quarter, the portfolio pays a dividend equal to shares × annual dividend per share ÷ 4. With DRIP on, that cash buys more shares at the current price; with DRIP off, it is set aside as cash. The dividend per share grows each year at your dividend growth rate.
At the end, the calculator compares the DRIP portfolio with the cash-taking portfolio plus all the cash collected, and shows your projected annual dividend income.
The formula
Shares_new = Shares + (Shares × D ÷ 4) ÷ Price- Shares
- shares owned before the dividend
- D
- annual dividend per share
- Price
- share price when the dividend is reinvested
- Yield
- D ÷ Price at the start
Worked example
Invest $20,000 in a stock yielding 3.5%, add $200 a month, and assume the share price grows 4% and the dividend grows 5% per year for 20 years.
In the first quarter, a 3.5% yield pays about $175 on $20,000. Reinvested at the current price, that buys roughly 1.7 more shares — small, but it happens every quarter on a growing base.
After 20 years the DRIP portfolio ends up meaningfully larger than the cash-taking portfolio plus the cash, and its annual income is far higher because you own many more shares.
Tips
- Most brokerages offer free automatic dividend reinvestment, including fractional shares.
- Reinvested dividends are still taxable in a regular brokerage account; hold dividend payers in an IRA or 401(k) where possible.
- A very high yield can signal risk — check that the dividend is covered by earnings.
Frequently asked questions
Are reinvested dividends taxed?
Yes. In a taxable account, dividends are taxed in the year they are paid even if you reinvest them. Qualified dividends get lower long-term capital gains rates. Dividends in IRAs and 401(k)s are not taxed annually.
Is DRIP a good idea?
For long-term investors who do not need the income, reinvesting is a simple, low-cost way to compound. Retirees who rely on the income often take dividends as cash instead.
What is dividend yield?
Dividend yield is the annual dividend per share divided by the share price. A $100 stock paying $3.50 a year yields 3.5%.
Can I turn DRIP on and off?
At most brokerages you can enable or disable dividend reinvestment for each holding at any time in your account settings.