# Is dividend reinvestment worth it?

Projects a stock or fund holding with its dividends reinvested (DRIP), from the yield, dividend growth, price growth and monthly additions you type, next to taking the dividends as cash.

- Page: https://www.acalculator.org/finance/dividend-reinvestment-calculator
- JSON spec: https://www.acalculator.org/finance/dividend-reinvestment-calculator.json
- Version: bc5791159121

## Default answer

Example with the default inputs (Starting investment $10,000.00, Share price at the start $50.00, Dividend yield 3%, Dividend growth each year 5%, Share price growth each year 4%, Years 20, Dividends are paid Quarterly, You add $0.00, Reinvest dividends Yes, Tax on dividends 0%): $10,000.00 held for 20 years at a 3% dividend yield ends at about $41,539.01; with every dividend taken as cash, $31,831.02.

## Inputs

| Key | Label | Description |
| --- | --- | --- |
| initial | Starting investment | What you invest at the start. |
| price | Share price at the start | The price of one share when you buy, typed by you. It sets how many shares you hold. |
| yield | Dividend yield | The yearly dividend per share as a percent of the starting share price. |
| dgrowth | Dividend growth each year | How much the dividend per share rises each year. |
| pgrowth | Share price growth each year | How much the share price rises each year. Negative for a fall. |
| years | Years | How many years you hold the investment. |
| freq | Dividends are paid | How often the dividend is paid: monthly, quarterly, twice a year or yearly. |
| add | You add | Money you add to the holding, per month or per year. A yearly amount is split into 12. |
| drip | Reinvest dividends | On: each dividend buys more shares (a DRIP). Off: dividends are taken as cash. |
| tax | Tax on dividends | The tax rate on dividends, taken out before they are reinvested or paid. 0 for a tax-free account. |

## Outputs

| Key | Label | Description |
| --- | --- | --- |
| value | Value at the end | Shares × share price at the end, plus any dividends taken as cash. |
| invested | You put in | The starting investment plus every addition. |
| dividends | Total dividends | Every dividend paid, after tax. |
| lastYear | Dividends in the last year | The dividends paid in the last 12 months, after tax. |
| shares | Shares at the end | The shares you hold at the end. |
| withoutDrip | With dividends taken as cash | The value at the end if every dividend had been taken as cash: shares × price + the cash. |
| dripGain | Reinvesting adds | The value at the end minus the value with dividends taken as cash. Shown when reinvesting. |

## Method

Each month the price grows by (1 + price growth)^(1/12). On a payment month the dividend = shares × (start price × yield × (1 + dividend growth)^year ÷ payments a year) × (1 − tax), and with reinvesting it buys dividend ÷ price more shares; the monthly addition buys addition ÷ price shares.

## Assumptions

- The yield, dividend growth and price growth are yours to type and stay the same every year; no live prices or quotes are used.
- Dividends are reinvested on the payment day at that day’s price, in fractional shares, with no fees.
- Monthly additions buy shares at the end of each month.
- Tax, if any, comes out of each dividend before it is reinvested; taxes on selling are not included.

## Worked examples

1. initial = $10,000.00, price = $100.00, yield = 4%, dgrowth = 0%, pgrowth = 0%, years = 1, freq = 4, drip = yes gives shares = 104.060401, value = $10,406.04, dividends = $406.04, withoutDrip = $10,400.00, dripGain = $6.04. Source: SEC Investor.gov, "Direct Investment Plans: Buying Stock Directly from the Company" (dividend reinvestment plans) (https://www.investor.gov/introduction-investing/investing-basics/glossary/direct-investment-plans-buying-stock-directly).
2. initial = $10,000.00, price = $50.00, yield = 3%, dgrowth = 0%, pgrowth = 0%, years = 2, freq = 1, drip = no, add = $100.00 gives invested = $12,400.00, dividends = $702.00, lastYear = $369.00, value = $13,102.00, shares = 248. Source: SEC Investor.gov, "Direct Investment Plans: Buying Stock Directly from the Company" (dividend reinvestment plans) (https://www.investor.gov/introduction-investing/investing-basics/glossary/direct-investment-plans-buying-stock-directly).
3. initial = $10,000.00, price = $50.00, yield = 3%, dgrowth = 5%, pgrowth = 4%, years = 20, freq = 4, drip = yes gives value = $41,539.01, shares = 379.157241, dividends = $14,404.84, lastYear = $1,406.32, withoutDrip = $31,831.02.

## FAQ

### What is dividend reinvestment?

Instead of paying a dividend to you as cash, a dividend reinvestment plan (DRIP) uses it to buy more shares of the same stock or fund. Those new shares earn dividends too, so the dividends compound.

### How much difference does reinvesting make?

It grows with time. $10,000 in a stock yielding 3%, with the dividend growing 5% and the price 4% a year, reaches about $41,539 after 20 years with reinvestment, against about $31,831 when the dividends are taken as cash and not invested.

### What yield and growth should I use?

Type the numbers for your stock or fund: the yield is the yearly dividend per share divided by the share price. The calculator does not look up prices or dividends, and past growth does not promise future growth.

### Are reinvested dividends taxed?

In a taxable account, yes: the IRS treats reinvested dividends as received, so they are taxed in the year they are paid. Enter your dividend tax rate to take it out of each dividend. In an IRA or 401(k), set the tax to 0.

### Why does the share price matter if I type a yield?

The share price sets how many shares you hold, and the yield is a percent of the starting price. When the price rises faster than the dividend, each reinvested dividend buys fewer shares.

### Does it matter how often dividends are paid?

A little. Monthly or quarterly dividends are reinvested sooner than a yearly one, so they compound a bit faster. The yearly dividend per share is the same; it is split into equal payments.

## Sources

- U.S. Securities and Exchange Commission, Investor.gov, "Direct Investment Plans: Buying Stock Directly from the Company" (dividend reinvestment plans). https://www.investor.gov/introduction-investing/investing-basics/glossary/direct-investment-plans-buying-stock-directly
- Internal Revenue Service, Topic no. 404, Dividends (reinvested dividends are taxable). https://www.irs.gov/taxtopics/tc404