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 — the right model for covered-call and other yield-targeted funds.
Year-by-year breakdown
The same projection as the chart, in numbers. “Cash” is the value of the never-reinvested portfolio including the dividends piled up as cash.
| 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.
There are two ways to run one:
- Brokerage DRIP — a checkbox at your broker (Fidelity, Schwab, Vanguard, most others). Dividends from any enrolled stock or ETF buy more of it automatically, in fractional shares, free. This is what almost everyone should use, and it is the model this calculator assumes.
- Company-operated DRIP — run by the company through its transfer agent (Computershare, Equiniti). You enroll directly with the plan. Some plans add perks a broker cannot: shares issued at a small discount (typically 1–5% where offered) or optional cash purchases with no commission. The trade-off is more paperwork, one plan per company, and no ETFs.
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 current yield of roughly 1.0–1.1% — see the sources at the bottom), paid quarterly, with both dividends and share price growing 6% a year, held for 25 years, no extra contributions.
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.
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
- Use the company’s real dividend history for the growth rate, not hope. Five- and ten-year dividend CAGRs are on every broker’s quote page. High current yield usually means low future growth — model it that way.
- Fractional shares matter more than they look. Before brokers supported them, small dividends sat idle as cash until they could afford a whole share. Every major US broker now reinvests fractionally, so the model here assumes every dollar goes back in immediately.
- DRIP in taxable accounts creates bookkeeping. Every reinvestment is a new tax lot with its own cost basis. Brokers track this for you now, but it is one reason some investors reinvest only inside IRAs/401(k)s.
- Reinvesting is not automatically optimal. It doubles down on one holding. Many investors take dividends as cash and redirect them to whatever is underweight — same compounding, better balance. The “taken as cash” line here assumes the cash sits idle, which is the worst case; reinvested elsewhere at similar returns, the gap mostly closes.
- Taxes are owed either way. A DRIP does not defer 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 — JEPI, JEPQ, QYLD, and layered fund-of-funds versions like Hamilton’s HDIV or HYLD — earn their big headline yields by selling call options against the portfolio and paying out the premium. Selling a call caps the fund’s upside: if the market rallies past the strike, the option buyer takes the gain above it, and the fund keeps only the premium — which is why these strategies trade appreciation for income and their long-run price growth lags the index they write calls on.
The consequence for this calculator: a yield-targeted fund’s distribution is effectively a percentage of its net asset value — premiums scale with the portfolio, and many funds explicitly manage to a target yield. The payout can therefore only grow as fast as the price. Modelling one with dividend growth above price growth compounds two things that are really the same thing, and the projection silently drifts to a yield the fund could never pay. That is what the “Distribution tracks price” toggle fixes: it locks dividend growth to price growth so the yield stays constant, exactly as the fund class behaves. (For a dividend-growth stock — a company steadily raising a modest payout — leave it off; those genuinely can out-grow their price for long stretches.)
Fee layers matter too. HDIV charges a 0.00% direct management fee — “subject to the fees of the underlying portfolio ETFs”: it is a fund of funds holding covered-call ETFs that each charge their own fee, plus the cost of its ~25% leverage, so the all-in drag runs around ~1.9–2.5% a year even though the headline fee reads zero. The “Annual fees & tax drag” box exists for exactly this kind of layer — it is subtracted from growth before anything compounds, and it lowers the implied total return the way real fees do.
And use the implied-total-return line as your disbelief trigger. A 10% yield with an independent 10% dividend growth and 7.6% price growth implies roughly 22% a year compounded — double the stock market’s long-run ~10% and beyond what the best investors in history sustained over decades. No buyable income fund does that. When the number tops 15–20%, the inputs are inconsistent, not the fund generous: turn on the toggle, or enter the fund’s published total return and let the calculator back-solve a price growth that actually adds up.
FAQ
Are reinvested dividends taxable?
Yes, in a regular taxable account. The IRS treats a reinvested dividend exactly like a cash dividend: it is taxable income in the year it is paid, whether or not you ever touched the money. In the US, qualified dividends are taxed at 0%, 15% or 20% depending on your income, and non-qualified dividends at ordinary income rates. Dividends inside tax-advantaged accounts such as a 401(k) or IRA are not taxed in the year they are paid. This is general information, not tax advice.
What dividend growth rate should I assume?
Look at the company's own record first: its 5- and 10-year dividend growth rates are published on most broker and finance sites. Broad-market index funds have historically grown dividends roughly in line with earnings, around 5-6% a year over long periods. High-yield stocks usually grow their dividends much more slowly, sometimes 0-3%. A conservative habit is to assume slightly less growth than the historical record.
Does this calculator account for taxes and fees?
No. The projection is pre-tax and assumes commission-free reinvestment, which is how most brokerage DRIPs now work. 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 free checkbox at your broker: dividends from a stock or ETF automatically buy more of it, usually as fractional shares, with no paperwork. A company-operated (transfer-agent) DRIP is run by the company itself; you enroll directly, and some plans offer perks such as buying shares at a small discount or making optional cash purchases with no commission. For most investors the brokerage version is simpler, and it works for ETFs, which company plans do not cover.
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. This calculator assumes cash dividends sit uninvested; if you spent or reinvested them elsewhere, the gap would look different.
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. Real dividend payers usually raise payouts roughly in line with their price over long periods, so 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?
The S&P 500's dividend yield is unusually low right now — around 1.0-1.1% as of mid-2026, versus a long-term average of about 1.6% and roughly 2% through much of the 1990s-2010s. If you are modeling an S&P 500 fund, a yield of 1.0-1.3% with dividend growth of 5-6% is a reasonable starting point; check your specific fund's trailing yield for the current figure.
How do I model JEPI/HDIV-type funds?
Turn on "Distribution tracks price", enter the fund's current distribution yield, and give price growth a modest number — covered-call funds deliberately trade upside for premium income, so their long-run price growth usually lags the index they write calls on. The lock keeps dividend growth equal to price growth, which is how these funds behave: the distribution is effectively a percentage of the fund's value, so the payout can only grow as fast as the price. Put any fund-of-funds or advisory fee layers in the fees box, then sanity-check the implied total return line against 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 the fastest way to spot impossible inputs. The long-run return of broad stock markets is about 10% a year, and the best investors in history compounded near 20%; if your inputs imply 20%+ for a fund you can actually buy, the assumptions are almost certainly inconsistent — usually dividend growth compounding on top of a high yield. Check the number against the fund's published total return before trusting the projection.