What this DRIP calculator shows that a basic compound interest calculator misses
A standard compound interest calculator treats every return as one generic percentage. Dividend investing has two separate engines: new shares purchased through reinvestment and growth in the dividend paid by each share. This calculator models both, then compares the result with an investor who contributes the same amount but takes every dividend as cash.
The comparison matters because dividend growth alone raises income in both scenarios. The gap between the two lines isolates the additional income created by DRIP: reinvested payments purchase shares that generate their own future payments. Monthly contributions are shown separately as contributed capital so deposits are not mistaken for investment returns.
What is DRIP investing?
DRIP investing means reinvesting cash dividends back into the same stock or fund instead of taking the dividend as spendable income. DRIP stands for Dividend Reinvestment Plan. When a company pays a dividend, your broker uses that cash to buy additional shares, often including fractional shares, so every dividend payment increases the number of shares you own.
The compounding effect has two engines. First, reinvested dividends buy more shares, and those new shares generate their own future dividends. Second, quality dividend-growth companies can raise the dividend per share over time, so each share may produce more income in future years. When both forces work together, the income curve starts slowly and then accelerates in the later years of a 10-, 15-, or 20-year projection.
DRIP investing is most useful for long-term investors who do not need the income today. It can be especially powerful in retirement accounts, where reinvestment is not interrupted by annual dividend taxes. It is not automatic magic, though. A DRIP still depends on the quality of the underlying business, the sustainability of the dividend, valuation at purchase, and whether the dividend keeps growing. Reinvesting dividends into a weak company can compound mistakes just as efficiently as reinvesting into a strong one compounds income.
Yield on Cost: The Number That Actually Matters
Yield on cost (YOC) is your annual dividend income divided by your original cost basis — not the current stock price. It grows every year that the dividend increases, regardless of what happens to the share price.
A $10,000 investment at a 3% starting yield returns $300 in year one. If the company grows its dividend at 8% annually and you reinvest, by year 15 you might earn $900–$1,200 per year on that same $10,000 cost basis — a 9–12% yield on cost. The stock's current yield becomes irrelevant to an investor who bought 15 years ago.
This is why long-term dividend investors care more about dividend growth rate than starting yield. A 2% yielder growing at 12% annually surpasses a static 5% yield in annual income around year 11–12, and compounds past it permanently.
What Dividend CAGR to Use
The dividend CAGR is the most consequential input in the projection over horizons longer than 10 years. Each stock's DividendVisual page shows its historical 5-year and 10-year dividend CAGR. Use the 5-year figure as your baseline, and shade it downward by 1–2 percentage points for conservatism.
Conservative income stocks — utilities, consumer staples, telecoms — typically grow dividends 3–5% annually. Dividend Kings as a group average 6–8%. High-quality compounders like Home Depot, Texas Instruments, and Microsoft have historically grown 8–15%, though sustaining that rate indefinitely is not guaranteed.
Limitations of This Calculator
This calculator assumes a constant stock price for reinvestment — a simplification that makes the math clean but ignores price appreciation and volatility. In practice, DRIP purchases happen at fluctuating prices, which can work in your favor (buying more shares during dips) or against you.
The model also assumes a constant dividend CAGR throughout the projection horizon. No company guarantees this. Dividend cuts — while rare among Dividend Aristocrats — do happen during severe recessions. Use the quality score on each stock's page to assess dividend sustainability before projecting long-term growth.
Monthly contributions are invested at the beginning of each modeled month, and dividends are represented as monthly payments to keep the comparison consistent. Real companies may pay quarterly, monthly, semi-annually, or on another schedule. Over long periods the payment schedule usually matters less than dividend sustainability, growth, taxes, and the prices at which reinvestment occurs.
How to use this DRIP calculator
- Enter your initial investment and optional monthly contribution. Contributions buy additional shares in both scenarios, so the comparison does not credit DRIP for capital you supplied yourself.
- Set the current dividend yield of your target stock. Use the stock's current yield — available on its DividendVisual page. Avoid using the highest historical yield as your starting point; it overstates the actual income you would receive today.
- Enter the dividend growth CAGR.Open the stock's DividendVisual analysis page to find its 5-year or 10-year dividend CAGR. Use the 5-year figure as a baseline. If the company has slowed its growth in recent years, shade it down by 1–2 percentage points.
- Choose your time horizon and compare both income paths. The purple series reinvests dividends; the gray series takes them as cash. Yield on cost uses all capital contributed when monthly deposits are enabled.
DRIP calculator examples
The examples below use a $10,000 starting investment, full dividend reinvestment, a constant share price assumption, and no taxes. They are not forecasts; they show how different starting yields and dividend growth rates change the income path.
| Case | Starting Yield | Dividend Growth | Year 1 Income | Year 20 Income |
|---|---|---|---|---|
| High-yield REIT example | 5.5% | 3% | ~$550 | ~$1,350 |
| Balanced dividend-growth example | 3.2% | 5% | ~$320 | ~$1,150 |
| Low-yield compounder example | 2.5% | 11% | ~$250 | ~$2,900 |
The high-yield REIT case starts with the most income, but the lower-yield compounder can pass it over long horizons if dividend growth remains high. The balanced case sits in the middle: less starting income than the REIT, but more growth than a slow-growing high-yield stock. This is why the DRIP calculator is useful: it makes the trade-off between starting yield and dividend growth visible in dollars.