Dividend Reinvestment (DRIP) Calculator
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Projections Summary
Total Ending Balance:
Total Dividends Earned:
Total Principal Invested:
Annual Dividend Income at End:
What is a DRIP Calculator?
A Dividend Reinvestment Plan (DRIP) calculator is a financial tool designed to estimate the long-term growth of an investment when dividends are automatically used to purchase more shares of the stock or fund. This creates a compounding effect, where you earn "dividends on your dividends," significantly accelerating wealth accumulation over decades.
The Power of Compounding Dividends
Unlike standard savings accounts, a DRIP strategy utilizes two forms of growth simultaneously: capital appreciation (the increase in stock price) and dividend yield. When these dividends are reinvested, your share count increases without you having to add extra capital out of pocket. Over a 20 to 30-year horizon, the number of shares owned can multiply, leading to substantial passive income.
Realistic DRIP Example
Imagine you start with $10,000 in a high-quality dividend stock with a 4% yield and an average annual stock price growth of 5%. If you contribute an additional $100 per month ($1,200/year) and reinvest all dividends:
- After 10 Years: Your balance could grow to approximately $34,000.
- After 20 Years: Your balance could exceed $85,000.
- After 30 Years: You could be looking at over $185,000, with an annual dividend income of nearly $7,500.
Key Variables to Consider
When using this calculator, it is important to understand the inputs:
- Dividend Yield: The annual percentage paid out by the company relative to its share price. High yields (above 6%) may sometimes indicate higher risk.
- Stock Appreciation: The historical average growth of the share price. The S&P 500 has historically averaged around 7-10% total return, but individual dividend stocks may grow slower.
- Frequency: Most US stocks pay dividends quarterly, while some REITs or ETFs pay monthly.