How this calculator works
A dividend reinvestment plan (DRIP) automatically uses each dividend payment to buy additional shares of the same stock, rather than paying it out as cash. Because each year's dividend is paid on a larger share count than the year before, reinvesting compounds the position over time in a way that simple price appreciation alone does not.
This calculator simulates that process one year at a time: the dividend per share and the share price each grow at the rates you enter, the dividend received on the shares held is reinvested at that year's price, and the process repeats. It also computes what the position would be worth if you had kept the same original share count and simply collected the dividends as cash instead, so you can see reinvestment's contribution on its own.
This is a simplified model, not a brokerage-account simulation. It assumes dividends are reinvested once a year rather than on each actual payment date, and it does not account for taxes on dividends or any trading fees, both of which would reduce real-world results.
The formula
Shares₀ = Initial investment ÷ initial share priceEach year: Dividend received = Shares held × dividend per shareNew shares = Dividend received ÷ that year's share priceDividend per share and share price each grow by their respective annual growth rateThe 'no reinvestment' comparison keeps the original share count fixed for the whole period and simply adds up the dividends received as uninvested cash, isolating what reinvestment itself contributed.
Worked example: $10,000 at $50/share, $1.50 dividend, year 1
- Initial shares = $10,000 ÷ $50 = 200 shares.
- Year 1 dividend received = 200 shares × $1.50 = $300.
- New shares bought = $300 ÷ $50 (year 1 price) = 6 shares, bringing the total to 206 shares.
- Year 1 ending value = 206 shares × $50 = $10,300. From year 2 on, both the dividend per share and the share price grow at their entered annual rates, compounding the share count faster each year.
Frequently asked questions
Does this account for taxes on reinvested dividends?
No. In many countries, reinvested dividends are still taxable income in the year received, even though no cash was paid out to you. This calculator shows pre-tax growth only.
Why does the no-reinvestment comparison still include the dividends?
To isolate what reinvestment itself adds. The no-reinvestment case assumes you kept the original number of shares and simply held the dividend payments as cash (with no further growth on that cash), so the difference between the two final values shows the benefit of compounding through reinvestment specifically.
Is dividend growth guaranteed?
No. Companies can cut, suspend, or grow dividends unevenly depending on earnings and cash flow. The dividend growth rate here is an assumption you control, not a projection of any specific company's future policy.
Does reinvestment timing matter?
Yes, in reality. Most DRIPs reinvest on the actual dividend payment date, often quarterly, rather than once a year. This calculator uses an annual approximation for simplicity, which will differ slightly from a brokerage's actual quarterly reinvestment schedule.
What happens in this calculator if the share price falls instead of rises?
Enter a negative annual price growth rate, and each year's reinvestment buys shares at a lower price than the year before, so each dollar of dividend buys more shares even as the position's total dollar value grows more slowly or falls. The calculator applies the same year-by-year formula (new shares = dividend received ÷ that year's share price) regardless of whether the growth rate you enter is positive or negative.