Quick answer
A dividend reinvestment plan (DRIP) uses each dividend to buy more shares, so the share count itself compounds and the gap over taking cash grows over decades. In the calculator's own example, $10,000 at a 1.2% yield paid quarterly, with dividends and price both growing 6% a year for 25 years and no extra contributions, ends at $57,908 reinvested against $49,649 with the dividends held as cash at 0%.
How the yield input works: a yield entered in % is converted to dollars per share once, at the start — 3% of a $100 share means $3.00 per share in year 1 (the exact figure is shown under the yield box). From then on the payout grows at your dividend growth rate and the price at its own rate, so the yield at the end of the projection can drift far from the yield you typed. The “Effective yield at end” line in the results shows exactly where it lands. With “Distribution tracks price” on, dividend growth is locked to price growth instead, so the yield holds constant. That models a fund whose distribution follows its price, which is an assumption (see the covered-call section below).
Year-by-year breakdown
The same projection as the chart, in numbers. “Cash” is the value of the never-reinvested portfolio including the dividends held as cash, earning whatever rate you set for uninvested dividends.
| Year | Shares (DRIP) | Value (DRIP) | Annual dividend income | Value (cash) |
|---|
What a DRIP actually is
A dividend reinvestment plan (DRIP) automatically uses every dividend a stock or fund pays you to buy more of that same stock or fund, usually including fractional shares, usually with no commission. Instead of a $30 dividend landing in your cash balance, it becomes 0.3 more shares at $100 each — and those 0.3 shares pay their own dividends next quarter.
That last part is the whole trick. Without reinvestment, your share count is frozen: 100 shares today, 100 shares in twenty years. With reinvestment, the share count itself compounds — each payment slightly raises the next payment, which buys slightly more stock, and over decades the gap between the two paths gets dramatic. It is the same compound-interest math as a savings account, except the “interest” is paid in shares whose price and payout can also grow. One honesty note: the calculator’s “without reinvestment” figure is the frozen shares plus every cash dividend, held at 0% by default — which flatters reinvesting a little, since real cash would earn something. Set “uninvested dividends earn” to a savings or T-bill rate for the fairer comparison.
There are two ways to run one:
- Brokerage DRIP — a setting on your own brokerage account. Schwab, for example, describes its DRIP as automatically reinvesting dividends and capital gains distributions into additional whole and fractional shares of the same security, typically at no charge (30 October 2025). It is the model this calculator assumes: every dollar of dividend buys shares immediately, with no commission.
- Company-operated DRIP — a plan the company offers. The IRS describes it as a plan that lets you use your dividends to buy more shares of the company’s stock through an agent, and says some plans let you buy at a price below fair market value or invest extra cash at such a price; it sets out how a discount is taxed (see the tax question in the FAQ). This calculator does not model discounts.
How the calculator works
The model steps through every dividend payment date rather than jumping year to year, because reinvesting quarterly genuinely compounds faster than reinvesting the same total once a year. At each payment:
contribution → shares += contribution ÷ price
dividend d = shares × (annual dividend per share ÷ payments per year)
reinvest shares += d ÷ price (or cash += d if not reinvesting)
growth price × (1+gprice)1/n, dividend × (1+gdiv)1/n
Both annual growth rates are converted to per-period rates with the exponent 1/n (n = payments per year), so 6% a year is exactly 6% a year whether paid monthly or quarterly. If you enter the dividend as a yield, it is converted once at the start: annual dividend per share = share price × yield. After that the dividend grows at its own rate, independent of the price — which is why a stock’s yield on cost drifts up over time even as its quoted yield stays put.
Two simulations run in parallel — identical except one reinvests and one banks the cash — and both are drawn on the chart, so the “DRIP premium” you see is an apples-to-apples comparison, not a trick of different assumptions.
Worked example 1 — a broad-market, S&P-style holding
Say you put $10,000 into an index-style holding at $100 a share: a 1.2% yield ($1.20 per share per year, close to the S&P 500’s index dividend yield of 1.09% on 8 October 2026, per State Street’s SPY page), paid quarterly, with both dividends and share price growing 6% a year, held for 25 years, no extra contributions (the monthly contribution ships at $100 above — clear it to reproduce the figures that follow).
The first quarterly dividend is 100 shares × $0.30 = $30.00, which buys 0.3 more shares at $100. Tiny. But repeated 100 times with growing payouts and a growing share count:
- With reinvestment: 134.93 shares worth $57,908, having collected $8,112 in dividends along the way, with dividend income now running at $695 a year — a 6.9% yield on your original cost.
- Without reinvestment: still 100 shares, worth $42,919, plus $6,730 in accumulated cash dividends = $49,649.
Reinvesting added $8,259 (about 17% more) — from a stock yielding barely 1%. The lesson: even at low yields, the DRIP premium is real, it just takes decades to show.
Worked example 2 — a high-yield holding
Now a slower-growth income stock: $10,000 at $50 a share, a 6% yield ($3.00 per share), quarterly, dividends and price each growing just 2% a year, held 20 years, with the monthly contribution set to $0 (it ships at $100 above — clear it to reproduce the figures that follow).
The first dividend is 200 shares × $0.75 = $150.00, buying 3 whole extra shares immediately. Here the share count snowballs fast:
- With reinvestment: 658.13 shares — more than triple the original 200 — worth $48,898, with $29,119 of total dividends collected and income now at $2,934 a year (a 29% yield on cost).
- Without reinvestment: 200 shares plus $14,687 of cash = $29,547.
Reinvesting added $19,351 — about 65% more. High yield plus reinvestment is where DRIP math is most dramatic, which is also why it deserves the most scrutiny: a 6% yield that gets cut in year 8 breaks the projection. Growth assumptions matter more than the calculator’s precision.
Practical guidance
- The growth rates are your assumptions, not forecasts. The calculator applies them as typed, less anything in the fees box, for every year. A company’s or fund’s own published dividend history is one reference for them; the calculator does not look any up.
- Fractional shares. The model assumes every dollar of each dividend buys shares immediately, fractions included. That is how Schwab describes its DRIP; other brokers’ plans may work differently, so check yours.
- In a US taxable account, each reinvestment is a new tax lot. Schwab says each reinvestment purchase is treated as a new tax lot with its own cost basis and purchase date, and IRS Publication 550 says the holding period of each reinvested share begins the day after it was purchased. Other countries’ rules are not covered here.
- Reinvesting puts the dividends back into the same holding; taking them as cash lets the money go anywhere else. The “taken as cash” line here holds the cash at whatever “uninvested dividends earn” is set to, 0% by default; if the cash were invested elsewhere at similar returns, the gap would mostly close.
- Taxes are owed either way. A DRIP does not defer US federal tax; see the FAQ below.
Everything on this page is general information and math, not financial or tax advice. Talk to a licensed adviser about your own situation.
Modelling covered-call and yield-targeted funds
Covered-call ETFs, which iShares also calls premium income ETFs, hold assets such as stocks and sell call options on them; the premiums they collect are distributed to investors (iShares, 12 August 2026). Selling a call can cap the fund’s gains: iShares says a covered-call ETF may forfeit some gains if the underlying assets rise above the strike price, and that in strong bull markets such strategies can lag traditional equity ETFs. Hamilton’s HDIV is one such fund: its ETF Facts (10 September 2026) describe a portfolio of primarily covered call ETFs focused on Canada, and say it uses borrowed money (leverage) that generally does not exceed about 25% of its net asset value.
What this means for the calculator: if you assume a fund’s distribution stays a fixed percentage of its price, the payout can grow only as fast as the price, and the “Distribution tracks price” toggle models exactly that by locking dividend growth to price growth so the yield stays constant. It is an assumption, not a fact about every fund: iShares says covered-call distributions can vary with market volatility, option pricing, equity market performance, portfolio construction and the share of the fund that has calls written. If you set dividend growth above price growth instead, the yield in the projection drifts upward, and the “Effective yield at end” line shows where it lands. For a company whose dividend you expect to grow at its own rate, leave the toggle off and the calculator applies your dividend growth rate as typed.
Fee layers: Hamilton’s HDIV page shows a management fee of 0.00% and qualifies it as subject to the fees of the underlying portfolio ETFs. The ETF Facts for HDIV, dated 10 September 2026, give the fund’s expenses as 1.75% of its value as of 30 June 2026: a management expense ratio of 0.97% plus a trading expense ratio of 0.78%, with the note that Hamilton waived some expenses and the MER would otherwise have been higher. The ETF Facts do not break out the underlying ETFs’ own fees or the cost of the borrowing. They do say the fund’s returns are calculated from net asset value after expenses have been deducted. So if the yield and growth you enter are the fund’s own published figures, its expenses are already in them, and typing 1.75% into the “Annual fees & tax drag” box as well would deduct the same cost twice. If your growth figure is an index’s return instead, the fund’s expenses are not in it (State Street’s SPY page says index returns do not reflect the deduction of any fees or expenses), and the box is where they go. The box is also for costs outside the fund, such as an advisory fee you pay or an allowance for tax; whatever you enter is subtracted from both growth rates before anything compounds, and it lowers the implied total return the way a real fee would.
The implied-total-return line is the check on your inputs. A 10% yield with an independent 10% dividend growth and 7.6% price growth implies roughly 22% a year compounded. For comparison, Berkshire Hathaway’s 2024 letter to shareholders shows the S&P 500 with dividends included compounding at 10.4% a year over 1965 to 2024 and Berkshire’s own per-share market value at 19.9% a year. When the line is far above figures like those, recheck the inputs: turn on the toggle, or enter the fund’s published total return and let the calculator back-solve a price growth that adds up.
FAQ
Are reinvested dividends taxable?
Under United States federal rules, yes, in a regular taxable account. This answer describes those rules only; the rules of Canada and other countries are not covered here. The IRS's Publication 550 says that if you use your dividends to buy more stock at a price equal to its fair market value, you must still report the dividends as income. If a plan lets you buy stock at less than its fair market value, you report as dividend income the fair market value of the additional stock on the dividend payment date, and if it lets you invest extra cash at less than fair market value, you report as dividend income the difference between that cash and the stock's fair market value on that date. Publication 550 adds that your basis in stock you receive at a discount through such a plan is its full fair market value on the dividend payment date. Qualified dividends are subject to the same 0%, 15% or 20% maximum rates that apply to net capital gain; other dividends are taxed as ordinary income (IRS Topic no. 404). Publication 550 says those maximum rates apply only if the dividend meets its conditions, one of which is that you held the stock for more than 60 days during the 121-day period that begins 60 days before the ex-dividend date. Dividends can also be subject to the net investment income tax, which Publication 550 describes as a 3.8% tax on the lesser of your net investment income or the amount of your modified adjusted gross income over a threshold set by filing status ($200,000 single or head of household, $250,000 married filing jointly or qualifying surviving spouse, $125,000 married filing separately). Fidelity says qualified dividends paid into a tax-advantaged account such as a 401(k) or IRA are not subject to income tax when they are issued. This is general information, not tax advice.
What dividend growth rate should I assume?
There is no single right rate: it is your assumption, not a forecast, and a company's own published dividend history is one place to start. For the S&P 500 as a whole, Multpl's year-by-year table of S&P 500 dividend growth, which names Standard & Poor's as its source, shows yearly changes in the index's 12-month dividend per share, not adjusted for inflation, from -21.07% to 18.25% over 1989 to 2025; computed from its 37 values, the median is 5.46% and the mean 6.05%.
Does this calculator account for taxes and fees?
Not on its own. The projection is pre-tax and assumes commission-free reinvestment (Schwab, for one, says it charges no fees or commissions in a DRIP). The “Annual fees & tax drag” box subtracts a yearly percentage that you choose from both price growth and dividend growth; it does not work out any tax. In a taxable account, taxes paid on dividends each year reduce the amount you can actually compound, so real after-tax results will be lower than the pre-tax projection unless you hold the shares in a tax-advantaged account.
What is the difference between a brokerage DRIP and a company-operated DRIP?
A brokerage DRIP is a setting on your own account: Schwab, for example, describes its DRIP as automatically reinvesting dividends and capital gains distributions into additional whole and fractional shares of the same security, typically at no charge, and Hamilton ETFs says that to set up a DRIP on one of its ETFs you contact your brokerage. A company-operated DRIP is a plan the company offers: the IRS describes it as letting you use your dividends to buy more shares of the company's stock through an agent, and notes that some plans let you buy at less than fair market value, which has tax consequences (see the first question).
Why is the without-reinvestment line so much lower?
Because each reinvested dividend buys shares that pay their own dividends, and those dividends buy more shares — the share count itself compounds. When you take dividends as cash, your share count never grows, so both the portfolio value and the dividend income flatten out. By default this calculator holds cash dividends at 0%; set “uninvested dividends earn” to a savings or bond rate, and the gap narrows accordingly — and if you reinvested them elsewhere at similar returns, it would mostly close.
Why did my dividend income barely grow?
Because dividend income compounds through your dividend growth rate, not the share price. When you enter the dividend as a yield, the calculator converts it to a fixed dollar amount per share once, at the start; from then on the payout per share grows only at the dividend growth rate you set. With 0% dividend growth and a rising share price, the dollar payout per share never rises — only the extra shares bought by reinvesting add income — and the effective yield on the ever-higher price shrinks toward zero. To model a constant yield, set dividend growth equal to share price growth.
What yield should I use for an S&P 500 index fund?
There is no single right figure; a fund's own published yield is the one that describes that fund. For reference, State Street's page for the SPDR S&P 500 ETF Trust listed the S&P 500's index dividend yield as 1.09% on 8 October 2026 (the weighted average of the holdings' indicated annual dividend divided by price), iShares listed a 12-month trailing yield of 1.06% for its Core S&P 500 ETF as of 31 August 2026, and Multpl, a data site that credits Standard & Poor's and Robert Shiller for its figures, estimated 1.04% on 9 October 2026 from the index's 12-month dividends through June 2026. Multpl's year-end values were between 1.83% and 2.20% from 2010 to 2019 and between 1.15% and 1.71% from 2020 to 2025; it prints a mean of 4.20% and a median of 4.18% for a series whose year-end table begins in 1871.
How do I model a covered-call fund?
Turn on “Distribution tracks price”, enter the fund's current distribution yield, and set price growth to the figure you want to assume. The toggle sets dividend growth equal to price growth so the yield stays constant. That is this calculator's assumption about how a distribution behaves, not something every fund does: iShares says covered-call distributions can vary with market volatility, option pricing, equity market performance, portfolio construction and the share of the fund with calls written, and that selling calls can cap gains, so these funds can lag traditional equity ETFs in strong bull markets. If the yield and growth you enter are the fund's own published figures, its expenses are already in them (Hamilton's ETF Facts for HDIV, for one, say that fund's returns are calculated after expenses have been deducted), so typing the expense ratio into the fees box as well would count it twice. Use that box for costs your figures leave out, such as an advisory fee you pay or an allowance for tax. Then compare the implied total return line with the fund's published total return, or enter the published figure and let the calculator back-solve a consistent price growth.
What does implied total return tell me?
It is the annual growth rate your assumptions produce on their own: the calculator re-runs the projection on the initial amount with dividends reinvested and no contributions, and reports the compound annual return of that lump sum. Yield, dividend growth, price growth and fee drag all roll into this one number, which makes it a quick check on the inputs. For reference, Berkshire Hathaway's 2024 letter to shareholders shows the S&P 500 with dividends included compounding at 10.4% a year over 1965 to 2024 and Berkshire's per-share market value at 19.9% a year. An implied return far above those figures is a prompt to recheck the inputs; one way to get such a number is to set dividend growth well above price growth on a high yield. Check the number against the fund's published total return before trusting the projection.