Dividend Reinvestment Calculator

What this calculator answers

This dividend calculator projects what an investment in a dividend-paying stock or fund could pay and be worth after a number of years. It shows the ending value, the dividends you’d collect in the final year (and per month), the tax on them, your yield on cost, and a year-by-year table. It always works out both choices, reinvesting the dividends and taking them as cash, so you can see what reinvesting adds. Give it a monthly income goal and it also shows the portfolio that would pay it and the year your plan gets there.

It is an educational estimate built from the rates you enter, not a forecast or advice. It uses no live prices or company data.

How to use it

• Initial investment: the dollars you invest at the start. 25,000, $25,000 and 25k all work.
• Years: whole years, from 1 to 100.
• Enter the dividend as: a yield, or $ per share if you’d rather type the dividend and price from a quote page. With $ per share, enter today’s price per share and the annual dividend per share, the total of a year’s payments ($0.40 a quarter is $1.60 a year). The line under the dividend shows the yield it makes, so a quarterly figure typed as the annual one stands out.
• Dividend yield: the annual dividend as a percentage of today’s price. Type 3.5 for 3.5%, not 0.035.
• Share price (optional): adds share counts, the share price and the dividend per share to the table. The dollar results don’t depend on it.
• Reinvest dividends: picks which choice the headline shows. Both are compared under the result.
• Dividend growth and share price growth: how fast you expect each to change per year. Either can be negative.
• Payments per year: 1, 4 or 12, from the holding’s payout history.
• Tax on dividends: your rate on dividends, taken from each payment as it’s paid. Use 0 if your account doesn’t tax dividends as they’re paid.
• Yearly contribution and contribution timing: money added every year (enter 0 for none), at the start or the end of the year.
• Monthly income goal (optional): the dividends you’d like per month, before tax.

The results update as you type. The Try buttons load the cases worked through below: two 20-year profiles with a 20% dividend tax, taking the dividends as cash, a price that falls 3% a year, and a dividend of $1.60 a year on a $40 share, a 4% yield. To weigh two holdings or two plans, press Save for comparison, change the inputs and save again; each saved scenario shows its change from the first. The table under “Results at other dividend growth rates” reruns your case with the dividend growing 2 and 4 points slower or faster, the input that is hardest to know.

How is dividend reinvestment calculated?

The share price and the dividend per share each grow at their own steady rate from the day you buy. With $t$ in years from the purchase, the price and each dividend per share are

$$P(t) = P_0 (1 + g_p)^t \qquad D(t) = \frac{y}{f}\, P_0\, (1 + g_d)^t$$

• $P_0$ is the share price when you buy and $y$ the dividend yield on that price, as a decimal.
• $g_d$ and $g_p$ are the yearly growth rates of the dividend and the price.
• $f$ is the number of payments a year (1, 4 or 12). Payments fall at $t = 1/f, 2/f, \ldots$, so annual dividends arrive at each year end.

At each payment, your dividend is the shares you hold times $D(t)$. The tax, at your rate $\tau$, comes out of that dividend, and the rest buys shares at that day’s price:

$$\text{new shares} = \frac{\text{shares} \times D(t) \times (1 - \tau)}{P(t)}$$

With reinvestment off, the after-tax dividend is kept as cash instead. The ending value is the shares times the final price, plus any cash. Contributions made at the start of a year buy shares at that day’s price before the year’s dividends; contributions at the end of a year buy after the year’s last dividend.

When the dividend and the price grow at the same rate, every dividend is $y/f$ of that day’s price, so the yield on the current price never changes. The yield you enter is the dividend rate on the day you buy; the first payment, a quarter or a year later, already includes that period’s dividend growth.

Worked example: $25,000 at a 3.5% yield for 15 years

You invest $25,000 in a stock priced at $62.50 with a 3.5% dividend yield, paid quarterly. You expect the dividend to grow 6% a year and the price 4% a year, you’ll add $3,000 at the start of each year, dividends are taxed at 15% (for example), and you reinvest them.

1. Year 1 starts with $25,000 + $3,000 = $28,000, which buys 448 shares at $62.50.
2. The first dividend comes a quarter of a year in: (0.035 ÷ 4) × $62.50 × 1.06^0.25 = $0.5549 a share, or $248.60 on 448 shares.
3. Tax of 15% takes $37.29, leaving $211.31. The price is then $62.50 × 1.04^0.25 = $63.12, so the dividend buys 3.3479 more shares.
4. Repeating that for all four payments, year 1 pays $1,028.11 before tax and ends with 461.6409 shares worth $30,006.66 at $65.00.
5. After 60 payments and 15 contributions, the price is $112.56 and you hold 1,435.769 shares: an ending value of $161,608.68.
6. You put in $70,000. The dividends came to $51,607.97 before tax; $7,741.20 went in tax and $43,866.78 was reinvested. The remaining $47,741.90 is what the rising price added to every share bought along the way.
7. In year 15 the dividends are $7,188.68, or $599.06 a month ($6,110.38 after tax). That is a yield on cost of 10.27% on the $70,000, and the yield on the final price is 4.66%.

Taking the dividends as cash instead, the same plan ends at $141,675.02: $107,497.18 of shares plus $34,177.84 of cash. Reinvesting comes out $19,933.65 ahead. Counting the timing of the contributions, the total return is 7.69% a year reinvesting and 6.51% taking cash.

How much dividend income will my investment pay?

Multiply the shares you’ll hold by the dividend per share at the time. In the worked example that comes to $7,188.68 in year 15, or $599.06 a month before tax. The Dividends in year N figure adds up the payments in the last year of the projection; the table shows every year’s dividends, the tax on them, and what was reinvested or kept.

That income grows for three reasons: the dividend per share grows, reinvested dividends add shares, and contributions add shares. The reinvesting-vs-cash table separates the second one. With the dividends taken as cash, year 15 pays $4,899.15 instead of $7,188.68.

Reinvesting dividends vs taking cash

Reinvesting turns each dividend into more shares, and those shares pay dividends of their own and move with the price. Taking cash keeps the dividend as it is. The calculator counts the cash in the ending value, so the comparison is fair: the difference is only what reinvesting did with the money.

In this model, reinvesting never ends behind when the price doesn’t fall, because each reinvested dollar is still worth at least a dollar at the end, and shares bought before the last payment earn dividends besides. When the price keeps falling, it can end behind, because the shares it buys lose value while cash doesn’t. Example: $10,000 at a 5% yield paid monthly, with a flat dividend and the price falling 20% a year for 5 years, no tax. Taking cash ends at $5,776.80 ($3,276.80 of shares plus $2,500.00 of dividends); reinvesting ends at $5,201.41. The calculator says which comes out ahead for your inputs, and by how much.

Brokerage firms and funds may offer automatic reinvestment, and some companies run their own dividend reinvestment plans (DRIPs). Check whether the plan charges for the service; this calculator assumes no fees.

How much do I need to invest to earn $1,000 a month in dividends?

Divide the income you want per year by the yield: $1,000 a month is $12,000 a year, so at a 3.5% yield you’d need $12,000 ÷ 0.035 = $342,857.14 invested. For the income after tax, also divide by one minus your tax rate: at 15%, $342,857.14 ÷ 0.85 = $403,361.34.

A higher yield needs less money only if the dividend holds up; see the next two sections. The income goal box also estimates when your plan gets there. In the worked example, the year-15 dividends are 60% of $1,000 a month, and carrying on with the same contributions and rates reaches the goal in year 20, at $1,062.10 a month.

Dividend yield vs yield on cost

Dividend yield is the annual dividend per share divided by today’s price. Yield on cost divides your annual dividends by what you paid. In the worked example, the year-15 dividends of $7,188.68 are a 10.27% yield on the $70,000 you put in, but new money buying the same shares in year 15 would get 4.66%.

A high yield on cost shows how far the payout has grown since you bought; it doesn’t say what your money earns now. For that, compare the dividends with what the holding is worth today, or look at the total return, which also counts the price change.

Why your yield changes over time

The yield on the current price is the dividend divided by the price, so it moves whenever one grows faster than the other. It follows

$$\text{yield in year } n = y \times \left(\frac{1 + g_d}{1 + g_p}\right)^n$$

In the worked example, a dividend growing 6% against a price growing 4% lifts the yield from 3.5% to 4.66% over 15 years. Try Price falls 3% a year: with the dividend still growing 6%, the yield reaches 13.25% by year 15 and the ending value drops to $105,021.63. The calculator doesn’t cap the yield. It shows the yield on the year-end price in the table, and when the yield ends up half as high again or a third lower than where it started, a note says so and why. If a yield that far from today’s looks unlikely for the holding, narrow the gap between the two growth rates, and remember that a company can cut or stop its dividend (FINRA), which no steady growth rate shows.

Are reinvested dividends taxed?

Yes, in a taxable account. IRS Publication 550 says dividends used to buy more shares through a reinvestment plan must still be reported as income, and the SEC’s bulletin on fund distributions notes the same for reinvested fund distributions. The calculator therefore takes the tax out of each dividend when it’s paid and reinvests only the rest.

Your rate depends on the kind of dividend and your income. Qualified dividends are taxed at the lower capital gain rates and ordinary dividends as ordinary income (IRS Topic 404). Enter the rate that fits your situation. Price gains are taxed when you sell, which this calculator leaves out: the ending value is before any tax on a sale.

Taxing dividends as they’re paid favors returns that come from the price. The 5% yield, 2% growth and 2% yield, 5% growth buttons show it with $10,000 over 20 years, annual payments, no contributions and a 20% dividend tax. One holding yields 5% with dividend and price growth of 2%; the other yields 2% with growth of 5%. With no tax, both end at $39,426.61. With a 20% dividend tax, the first ends at $32,558.94 after $3,784.56 of tax and the second at $36,446.86 after $1,662.83, because more of the first one’s return arrives as taxable dividends.

Assumptions and limitations

• Smooth growth. The price and the dividend grow at constant rates. Real prices rise and fall from day to day, and the path the price takes changes how many shares each dividend buys.
• Dividends can be cut. A company doesn’t have to pay dividends and can reduce or stop them (FINRA); fund distributions aren’t guaranteed either (SEC). A projection that assumes years of growth doesn’t make them likely.
• One tax rate, no sale. Each dividend is taxed at one rate when paid. There’s no split between qualified and ordinary dividends, no foreign withholding and no tax on selling.
• No fees or cash drag. Reinvested dividends buy fractional shares at that day’s price with no commission. Cash kept earns nothing.
• No inflation. Every figure is in future dollars; if prices rise meanwhile, $599.06 a month in 15 years buys less than it would today.
• Rounding. Dividends and balances are carried at full precision and rounded to the cent only where they are shown.

Common mistakes

• Typing the quarterly dividend as the annual one. $0.40 a quarter is $1.60 a year. The line under Annual dividend shows the yield it makes; a yield a quarter of the one on the quote page gives it away.
• Using a yield inflated by a falling price or a one-off payment. A trailing yield can include a special dividend, and a yield that jumped because the price fell may not last. Use the regular dividend you expect to continue.
• Setting dividend growth well above price growth for decades. The yield on the price then climbs year after year. Check the Yield on the final price tile and the table before trusting a long projection.
• Comparing the reinvested value with the cash case’s shares alone. The cash you collected is part of what you have; the comparison table adds it in.
• Entering a monthly contribution as the yearly one. $250 a month is $3,000 a year.
• Reading yield on cost as your return. It divides today’s dividends by old money; the total return a year is the figure that compares with other investments.