Compound Dividend Calculator

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Compound Dividend Reinvestment Calculator

Projection Summary

Total Portfolio Value

Annual Dividend Income

Total Dividends Received

Yield on Cost

function calculateDividends() { var initial = parseFloat(document.getElementById('initialInvestment').value) || 0; var monthly = parseFloat(document.getElementById('monthlyContribution').value) || 0; var startYield = (parseFloat(document.getElementById('dividendYield').value) || 0) / 100; var growthRate = (parseFloat(document.getElementById('dividendGrowth').value) || 0) / 100; var tax = (parseFloat(document.getElementById('taxRate').value) || 0) / 100; var years = parseInt(document.getElementById('investmentYears').value) || 0; var balance = initial; var totalInvested = initial; var totalDividendsEarned = 0; var currentAnnualYield = startYield; // Months loop for (var y = 1; y 1) { currentAnnualYield = currentAnnualYield * (1 + growthRate); } for (var m = 1; m <= 12; m++) { // Monthly contribution balance += monthly; totalInvested += monthly; // Monthly dividend (based on current annual yield) var monthlyDividend = balance * (currentAnnualYield / 12); var netDividend = monthlyDividend * (1 – tax); balance += netDividend; totalDividendsEarned += netDividend; } } var finalAnnualIncome = balance * currentAnnualYield; var yoc = (finalAnnualIncome / totalInvested) * 100; document.getElementById('totalValue').innerText = '$' + balance.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2}); document.getElementById('annualIncome').innerText = '$' + finalAnnualIncome.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2}); document.getElementById('totalDividends').innerText = '$' + totalDividendsEarned.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2}); document.getElementById('yieldOnCost').innerText = yoc.toFixed(2) + '%'; document.getElementById('resultsArea').style.display = 'block'; }

Understanding Compound Dividend Growth

The Compound Dividend Calculator is a specialized tool designed for long-term income investors. Unlike a standard savings account, dividend growth investing relies on two powerful engines: the reinvestment of dividends and the organic growth of the dividends themselves (Dividend Growth Investing or DGI).

How Does Dividend Compounding Work?

When you invest in high-quality dividend-paying stocks, you receive cash payments. By opting for a Dividend Reinvestment Plan (DRIP), those payments are used to purchase more shares of the same stock. This creates a "snowball effect":

  • Step 1: You own shares that pay a dividend.
  • Step 2: Dividends are used to buy more shares.
  • Step 3: Next quarter, you earn dividends on your original shares PLUS the new shares.
  • Step 4: If the company raises its dividend (Dividend Growth), your yield on cost increases even faster.

Key Metrics Explained

Initial Investment: The starting amount of capital used to purchase your first dividend-paying assets.

Annual Dividend Growth: This is the rate at which the company increases its dividend payout per year. For example, if a company pays $1.00 this year and $1.05 next year, its growth rate is 5%.

Yield on Cost (YOC): This is perhaps the most important metric for long-term investors. It is calculated by dividing your *current* dividend income by your *initial* investment. Over decades, a 3% starting yield can turn into a 20% or 30% yield on cost due to dividend growth and reinvestment.

Strategic Examples

Scenario Yield Growth 20-Year Result
High Yield / Low Growth 7% 1% Steady Income, Lower Principal
Dividend Aristocrat 3% 8% Massive Long-term Wealth

Why Tax Rate Matters

Dividends are often subject to "Qualified Dividend" tax rates. In the United States, this is typically 15% or 20% depending on your income. If you hold these investments in a tax-advantaged account like a Roth IRA, you can set the tax rate to 0% in the calculator to see the significant difference tax-free compounding makes over time.

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