What is a DRIP (Dividend Reinvestment Plan)?

A DRIP automatically uses your dividend payments to purchase additional shares of the same stock instead of paying cash. Over time this compounds your share count and income, even without adding new money.

How does dividend reinvestment compounding work?

Each dividend payment buys fractional shares. Those new shares produce their own dividends next period, buying still more shares. The effect accelerates as the share count grows — this is dividend compounding, sometimes called the snowball effect.

Are DRIP dividends taxable?

Yes. Reinvested dividends are still taxable in the year received, just like cash dividends. The reinvested amount also increases your cost basis in the stock. In tax-advantaged accounts (IRA, 401k) dividends grow tax-deferred or tax-free.

What is a good dividend growth rate to assume?

The S&P 500's historical dividend growth rate is roughly 5–6% annually. Quality dividend-growth stocks (Dividend Aristocrats) average 7–9%. High-yield REITs and utilities often grow dividends 2–4%. The higher the current yield, the more modest the sustainable growth rate typically is.

How does share price growth affect a DRIP?

Higher share prices mean each dividend buys fewer new shares, slowing accumulation. Lower prices mean dividends buy more shares. In the long run, a mix of modest share appreciation and solid dividend growth typically produces the best total DRIP outcome.

DRIP Calculator — Dividend Reinvestment

Q: What is yield on cost?

Yield on cost (YoC) is annual dividend income divided by your original cost basis. As dividends grow and shares accumulate via DRIP, YoC can far exceed the current yield — a 3% yield stock purchased years ago may now yield 10%+ on your original investment.

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Walk-through

How to Use This Calculator

5 steps

1

Enter Starting Position

Input your initial share count, current share price, and current annual dividend per share. These set the starting state of your dividend-reinvestment plan.

2

Set Dividend Growth Rate

Growth rates and presets are editable illustrations, not quotes, forecasts or promised payouts. A dividend cut can reduce income to zero.

3

Set Share Price Growth

Growth rates and presets are editable illustrations, not quotes, forecasts or promised payouts. A dividend cut can reduce income to zero.

4

Choose Reinvestment Frequency

Price changes before each period-end dividend. Dividends use opening shares and tax is withheld before allocation. Contributions buy afterward. Choose fractional or whole shares and an optional fee per executed purchase.

5

Review the Snowball

Economic value equals securities plus cumulative net cash distributions and both residual cash pools. Cash earns 0%. Reinvested dividends are already in shares. Gain uses all external capital as its denominator; it is not CAGR or IRR.

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Reference

Formula & Methodology

2 formulas

Share purchase policy

Shares_bought_fractional = Available_cash / Purchase_price; Shares_bought_whole = floor(Available_cash / Purchase_price)

For each separate dividend or contribution pool, retain all cash when no purchase can execute. Otherwise deduct its fee and buy fractional shares or the largest whole number affordable. Carry the remainder forward. A dividend discount applies only to dividend purchases.

Total economic value

Economic_value = Ending_shares × Ending_share_price + Cumulative_net_cash_distributions + Dividend_residual + Contribution_residual

Economic value equals securities plus cumulative net cash distributions and both residual cash pools. Cash earns 0%. Reinvested dividends are already in shares. Gain uses all external capital as its denominator; it is not CAGR or IRR.

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YMYL

Trust, Methodology & Sources

Reviewed by Calculover Editorial Review · Updated 2026-08-10 · 3 sources

Editorial accountability

Author: Quinn Sumner - Editor

Owner: Quinn Sumner - Editorial owner

Reviewer: Calculover Editorial Review - Source and limitation review

Last reviewed: 2026-08-10

Last verified: 2026-08-10

Data effective: 2026-08-10

Methodology

Prices change geometrically before each modeled period-end payout. Dividends use shares held before that payout; fractional shares are bought after tax at the current modeled price, adjusted by any discount. External contributions arrive after the payout. Dividend growth changes the rate for the following year; reinvestment is not assumed to occur on an actual ex-dividend date. Total economic value equals ending securities plus retained net cash dividends. Retained cash earns 0%. Reinvested dividends are already inside securities value and are not added again. Return uses external contributed capital as its denominator; yield on original cost is a different metric. Optional whole-share purchases retain separate dividend and contribution cash pools. The flat purchase fee is charged only on an executed order; economic value includes both residual pools.

Assumption: DRIP Calculator relies on the user-entered starting position, growth rates, and reinvestment cadence and does not independently verify share-price or dividend data.

Assumption: Dividend growth and price growth are treated as constant rates compounded annually unless modeled otherwise — actual stocks experience volatility, dividend cuts, and special distributions.

Assumption: The entered tax is withheld from every dividend before allocation. Optional fees apply separately to executed dividend and contribution orders. Sale taxes, foreign withholding rules and tax benefits from discounted purchases are excluded.

Limitations & guidance

DRIP Calculator is a planning tool and does not guarantee future dividend payments, growth rates, or share-price appreciation.

Concentrated DRIP positions carry significant single-stock risk, including the possibility of dividend cuts, business failure, or accounting restatement.

All presets and growth assumptions are illustrative; no payout is promised. Fractional arithmetic and numeric ledger output are not cent-exact at every scale. Whole orders use 128-digit decimal calculations and annual geometric price anchors; neither mode models brokerage settlement.

Professional guidance: DRIP Calculator is for investing education only and is not investment, tax, or financial advice. Dividend-investing strategy, account-type selection, and tax-lot management should be reviewed with a qualified financial professional.

Primary sources

Dividend Reinvestment Plans (DRIPs) - U.S. Securities and Exchange Commission

Topic 404 — Dividends - Internal Revenue Service

Investing Basics - FINRA

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Glossary

Key Terms Explained

6 terms

DRIP (Dividend Reinvestment Plan) A modeled dividend reinvestment plan purchases more shares with some or all net dividends. Actual eligibility, fees and fractional-share availability depend on the provider; this model uses your entered assumptions.

Dividend Yield Annual dividend per share divided by the modeled share price. This dividend-yield measure is not total return and does not guarantee a payout.

Residual cash Unspent cash earmarked separately for dividend and contribution purchases. It stays in economic value and earns 0%; it is not reinvested dividend spending or a second contribution.

Yield on Cost Closing shares times that year's annual dividend per share, divided by the original opening investment. This gross run-rate ratio differs from net cash income and economic gain. With no original investment it is unavailable.

Purchase fees An optional flat fee paid from each executed purchase's cash pool. Dividend and contribution orders are separate. If no shares are bought, no fee is charged.

Ex-Dividend Date The ex-dividend date concerns entitlement to the next distribution, not the reinvestment purchase date. This model uses even period-end payouts, not actual eligibility or settlement dates.

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Scenarios

Real-World Examples

3 worked examples

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Long-Term Compounder

Illustrative 30-year reinvestment assumptions

Starting Shares 200 Starting Price $80 Starting Yield 3% Dividend Growth 7%/yr Price Growth 5%/yr Payouts per year 4 Years 30 Reinvestment allocation 100% Dividend tax rate 0% Fee per executed purchase $0

Starting with $16,000 and zero additional contributions, this model projects roughly $220,000 after 30 years, with about $10,865 in annual dividends. The result is highly sensitive to the constant dividend-growth and price-growth assumptions.

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Monthly payout illustration

Starting Shares 300 Starting Price $50 Starting Yield 5.5% Dividend Growth 3%/yr Price Growth 2%/yr Payouts per year 12 Years 15 Reinvestment allocation 100% Dividend tax rate 0% Fee per executed purchase $0

Slower price growth is offset by the high starting yield and monthly reinvestment cadence. The $15,000 position grows to roughly $48,000 over 15 years, with about $2,986 in annual dividends by the final modeled year. Actual results depend on dividend stability and price behavior.

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Yield-on-Cost Maximizer

20-year DRIP on a growth-dividend stock

Starting Shares 100 Starting Price $120 Starting Yield 2% Dividend Growth 10%/yr Price Growth 8%/yr Payouts per year 4 Years 20 Reinvestment allocation 100% Dividend tax rate 0% Fee per executed purchase $0

A low starting yield but high growth produces dramatic yield-on-cost expansion. After 20 years, this model projects roughly $88,000 from the initial $12,000, with about $2,314 in annual dividends. Constant 10% dividend growth is an aggressive assumption.

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Reference

Cite This Calculator

APA & MLA

Use either format to cite this calculator in a paper, report, or resource list.

APA

MLA

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Deep Dive

The Dividend Snowball — How DRIP Compounds Income Over Decades

4 chapters · 4 min read

This calculator models a single holding under entered dividend, price, tax, contribution and purchase assumptions. It does not select investments, promise payouts or model actual eligibility and settlement dates.

The Dual Compounding Effect

Price changes before each period-end dividend. Dividends use opening shares and tax is withheld before allocation. Contributions buy afterward. Choose fractional or whole shares and an optional fee per executed purchase.

Growth rates and presets are editable illustrations, not quotes, forecasts or promised payouts. A dividend cut can reduce income to zero.

Tax Considerations for DRIP Investors

The entered taxable-account rate is withheld from each dividend before reinvestment or distribution; it is not charged again from external cash. Purchase fees are modeled separately. Sale and withdrawal taxes, foreign rules and taxable purchase-discount benefits are excluded. Other account labels mean no current dividend withholding in this model, not a complete tax forecast.

Economic value equals securities plus cumulative net cash distributions and both residual cash pools. Cash earns 0%. Reinvested dividends are already in shares. Gain uses all external capital as its denominator; it is not CAGR or IRR.

Purchase policy and residual cash

For each separate dividend or contribution pool, retain all cash when no purchase can execute. Otherwise deduct its fee and buy fractional shares or the largest whole number affordable. Carry the remainder forward. A dividend discount applies only to dividend purchases.

Read the comparison on a consistent basis

The growth chart compares selected reinvestment with a 0% counterfactual using the same market, tax, fee, share-policy and contribution assumptions. Economic view includes all cash; securities-only view excludes it. Scenario overrides are explicit. None of these illustrations measures diversification, risk or investment suitability.

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Questions

Frequently Asked Questions

7 questions

Are DRIP dividends taxed even if I don't cash them?+

The entered taxable-account rate is withheld from each dividend before reinvestment or distribution; it is not charged again from external cash. Purchase fees are modeled separately. Sale and withdrawal taxes, foreign rules and taxable purchase-discount benefits are excluded. Other account labels mean no current dividend withholding in this model, not a complete tax forecast.

Is DRIP better than dividend ETFs?+

Dividend ETFs (such as SCHD, VYM, or DGRO) provide diversification and reduce single-stock dividend-cut risk, while direct DRIPs provide more control over individual holdings. The better fit depends on fees, taxes, diversification, risk tolerance, and your investment plan; this calculator models one holding and does not settle that choice.

Should I DRIP in a taxable or tax-advantaged account?+

The entered taxable-account rate is withheld from each dividend before reinvestment or distribution; it is not charged again from external cash. Purchase fees are modeled separately. Sale and withdrawal taxes, foreign rules and taxable purchase-discount benefits are excluded. Other account labels mean no current dividend withholding in this model, not a complete tax forecast.

What is yield on cost and why does DRIP grow it?+

Economic value equals securities plus cumulative net cash distributions and both residual cash pools. Cash earns 0%. Reinvested dividends are already in shares. Gain uses all external capital as its denominator; it is not CAGR or IRR.

Can DRIP work for dividend ETFs?+

Growth rates and presets are editable illustrations, not quotes, forecasts or promised payouts. A dividend cut can reduce income to zero. For each separate dividend or contribution pool, retain all cash when no purchase can execute. Otherwise deduct its fee and buy fractional shares or the largest whole number affordable. Carry the remainder forward. A dividend discount applies only to dividend purchases.

What if a DRIP company cuts its dividend?+

Growth rates and presets are editable illustrations, not quotes, forecasts or promised payouts. A dividend cut can reduce income to zero. For each separate dividend or contribution pool, retain all cash when no purchase can execute. Otherwise deduct its fee and buy fractional shares or the largest whole number affordable. Carry the remainder forward. A dividend discount applies only to dividend purchases.

How does whole-share residual cash work?+

A $25 purchase pool at a $10 modeled purchase price and zero fee buys 2 whole shares and retains $5. Both the $20 securities and the $5 residual remain in economic value. With a fee, deduct it only if an actual share purchase can execute; otherwise retain the entire pool.

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Calculator topicDRIP

DRIP Calculator

How to Use This Calculator

Enter Starting Position

Set Dividend Growth Rate

Set Share Price Growth

Choose Reinvestment Frequency

Review the Snowball

Formula & Methodology

Trust, Methodology & Sources

Key Terms Explained

Real-World Examples

Cite This Calculator

The Dividend Snowball — How DRIP Compounds Income Over Decades

The Dual Compounding Effect

Tax Considerations for DRIP Investors

Purchase policy and residual cash

Read the comparison on a consistent basis

Frequently Asked Questions

Get a branded PDF of your results

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