Dividend Reinvestment (DRIP) Calculator
Project your wealth growth by reinvesting dividends and capital gains.
Projection Summary
Understanding Dividend Reinvestment Plans (DRIP)
A Dividend Reinvestment Plan, or DRIP, is a powerful investment strategy where the cash dividends paid out by a company or fund are automatically used to purchase more shares of that same underlying asset. Instead of taking the cash as a payout, you "re-fuel" your portfolio, allowing the power of compound interest to work in two dimensions: stock price appreciation and an ever-increasing share count.
How This Calculator Works
Our DRIP calculator takes several variables into account to provide a realistic projection of your future portfolio value:
- Initial Investment: The starting amount you have in the stock or fund.
- Annual Contribution: The extra cash you plan to add to the principal every year.
- Dividend Yield: The percentage of the share price the company pays out in dividends annually.
- Price Growth: The estimated annual increase in the value of the stock price itself.
- Tax Rate: Many dividends are taxable. This calculator accounts for the "tax drag" by deducting taxes before reinvesting the dividend.
Example Projection
If you start with $10,000 in a stock with a 4% yield and 5% annual price growth, and you contribute $100 a month ($1,200/year):
- After 10 years, your portfolio would be worth approximately $35,120.
- After 20 years, it grows to roughly $93,450.
- By year 30, you could be looking at over $215,000, generating nearly $8,000 in annual dividends alone.
The Power of Compounding Shares
The secret of DRIP isn't just the money; it's the shares. When you reinvest a dividend, you buy more shares. Those new shares then generate their own dividends in the next quarter. This creates a "snowball effect." Even if the stock price remains flat, your total equity increases because your share count is growing. When the stock price eventually goes up, it applies to a much larger number of shares than you originally purchased.
Tax Considerations
It is important to remember that in many jurisdictions, dividends are considered taxable income in the year they are received, even if you reinvest them immediately. This is why our calculator includes a tax rate field. By accounting for taxes, you get a much more accurate "net" view of how your portfolio will grow over decades.