Worked example
A $10,000 investment at a $50 share price starts with 200 shares. At a $2 annual dividend, the first year's distribution is $400. If that dividend is reinvested at $50, it buys eight additional shares before any assumed change in future dividend or share price.
What this DRIP model assumes
The model reinvests each year's dividend at that year's displayed share price and then applies the entered dividend-growth and share-price-growth assumptions for the next year. It does not model taxes, brokerage fees, intrayear volatility or exact payment timing.
Why reinvestment compounds
Reinvested dividends purchase additional shares. If future dividends continue, those additional shares can generate distributions of their own. The same mechanism also means the investor becomes more exposed to the same company or fund.
Continue your research
Read What Is Dividend Reinvestment?, Dividend Growth Rate Explained and Dividend Payout Ratio Explained. For a simple income estimate, use the Dividend Calculator or browse the Dividend Research hub.
Frequently asked questions
What is dividend reinvestment?
Dividend reinvestment uses cash distributions to purchase additional shares instead of taking the dividend as cash.
Why can DRIP investing compound?
Reinvested dividends can buy additional shares, and those additional shares may receive future dividends if the company continues paying them.
Does the calculator include tax and fees?
No. The model excludes taxes, fees and intrayear price changes and uses only the assumptions entered.