Dividend Reinvestment (DRIP) Calculator
Project your long-term wealth through the power of compounding dividends.
Projection Results
What is a Dividend Reinvestment Plan (DRIP)?
A Dividend Reinvestment Plan, or DRIP, is a strategy where an investor automatically reinvests their cash dividends back into additional shares of the underlying company or fund. Instead of receiving a quarterly check, you use those funds to buy more "income-producing machines," which in turn produce more dividends in the future.
The Power of Compounding with DRIP
When you use a DRIP calculator, you see the "snowball effect" in action. Compounding works on three levels here:
- Share Price Appreciation: Your original shares grow in value.
- Additional Shares: Your dividends buy more shares, increasing your total ownership.
- Dividend Growth: As you own more shares, your next dividend payment is larger, allowing you to buy even more shares the following period.
Real-World Example
Imagine you start with $10,000 in a stock with a 4% dividend yield and a 5% annual price growth. If you contribute $500 every month and reinvest all dividends, after 20 years, your portfolio wouldn't just be the sum of your deposits ($130,000); it would likely be worth over $400,000 (depending on tax treatment and specific growth rates).
Key Factors in Your DRIP Strategy
1. Dividend Yield: This is the annual dividend payment divided by the stock price. High yields aren't always better; look for "dividend aristocrats" that have a history of consistent payments.
2. Tax Implications: Unless you are investing within a tax-advantaged account like a Roth IRA or 401(k), you generally owe taxes on dividends in the year they are paid, even if you reinvest them immediately.
3. Consistency: The biggest factor in a DRIP's success is time. The longer you let the dividends compound without withdrawing them, the more aggressive the growth curve becomes in the later years.