Dividend Reinvestment (DRIP) Calculator
Total Portfolio Value:
$0.00
Total Dividends Earned:
$0.00
Total Principal Invested:
$0.00
Annual Dividend Income at End:
$0.00
How a Dividend Reinvestment Plan (DRIP) Accelerates Wealth
A Dividend Reinvestment Plan, or DRIP, is a powerful strategy where the dividends paid by a company or fund are automatically used to purchase more shares of that same security. Instead of receiving a cash payment, you increase your ownership stake, which in turn leads to even larger dividend payments in the future.
This calculator helps you visualize the compounding effect of reinvesting dividends while accounting for share price appreciation and potential taxes. By reinvesting, you are effectively "compounding" your shares, not just your dollar balance.
Realistic DRIP Example:
If you start with $10,000 in a stock with a 4% yield and 5% annual growth, and you contribute $100 per month:
If you start with $10,000 in a stock with a 4% yield and 5% annual growth, and you contribute $100 per month:
- Without DRIP: You take the cash and only gain from the 5% growth.
- With DRIP: Your dividends buy more shares. After 20 years, your portfolio could be worth significantly more because you own more "units" producing income.
Key Factors in Dividend Compounding
- Yield: The percentage of the share price paid out annually in dividends. Higher yields accelerate share accumulation.
- Price Appreciation: While dividends provide income, the growth of the underlying share price increases the total value of your holdings.
- Taxation: In a taxable brokerage account, you typically owe taxes on dividends even if they are reinvested. Using a Roth IRA or 401(k) can eliminate this drag.
- Time Horizon: DRIP strategies shine over decades. The "snowball effect" becomes most apparent after the 10-15 year mark.
The Math Behind the Calculator
This calculator simulates growth on a monthly basis. It calculates the monthly dividend yield (Annual Yield / 12) and the monthly appreciation. Every month, the contribution is added, the shares grow in value, and the dividends are calculated based on the current balance. Taxes are deducted from the dividend payment before the remainder is reinvested back into the portfolio balance.