What does reinvesting the dividend actually buy?
Take the dividend as cash or let it buy more of the same thing. Same yield, same growth — see the gap compounding the dividend actually produces.
The annual dividend as a share of the current value — a stock or fund page states this directly.
More options(4)
Yield plus price growth combined. The price-growth share is whatever is left once the yield is taken out.
Reinvesting a 3% yield over 20 years
$15,659
Reinvest every dividend and the pot reaches $122,529. Take the same dividends as cash instead and the pot itself only reaches $83,724 — plus $23,146 paid out along the way, for a combined $106,870. Reinvesting still ends up $15,659 ahead, because a reinvested dividend goes on to earn its own price growth and its own dividends — cash in hand does neither.
- Pot if reinvested
- $122,529
- Pot + cash if taken as income
- $106,870
- Total dividends earned (reinvested)
- $29,874
The lower line is the portfolio only — it does not include the $23,146 in dividends paid out along the way as cash. Add that back and the true gap from reinvesting is $15,659, shown above.
If returns average…
Nobody knows which of these happens
| Assumption | Pot if reinvested |
|---|---|
| 4% a year — cautious | $83,998 |
| 7% a year — middle | $122,529 |
| 10% a year — optimistic | $181,766 |
Markets do not return the same amount every year. The band shows the same plan under three different assumptions, so you can see how much the answer depends on a number nobody knows.
What a DRIP actually changes
A dividend is cash. What happens to that cash next is a choice, and the two options are not close to equivalent over any real length of time. Take it as income and it sits there, spent or saved, earning nothing more from the investment that paid it. Reinvest it — a DRIP, or "dividend reinvestment plan" — and it buys more of the same holding, which means it is now large enough to earn its own share of next year's dividend, on top of whatever the price does.
That is the entire mechanism. There is no special DRIP interest rate and no bonus for enrolling — a DRIP is just compounding, applied to the part of the return that would otherwise have left the account. The calculator above runs the same yield and the same assumed growth both ways so the size of that difference is visible rather than asserted.
Why the gap is bigger than the dividends themselves
It would be easy to assume reinvesting is worth exactly the dividends paid — put back what came out, get back what you put in. It is worth more than that, because every reinvested dividend starts earning price growth and future dividends of its own from the month it lands. A dividend reinvested in year three is still compounding in year twenty; a dividend taken as cash in year three stopped earning anything the moment it was paid. The longer the holding period, the wider that gap grows — which is also why the effect is easy to underestimate from a year or two of history.
What this calculator does not know
- The yield is held constant. A real dividend is usually a fixed cash amount per share, set by the company, that can be raised, cut or skipped — this tool applies a steady percentage yield to the current balance every year instead, which is the same simplification a stated "yield" figure always makes.
- No dividend tax. Many accounts tax dividend income differently from capital gains, and the rules vary enormously by country and account type — outside what this site models. See how the maths works for what the site does and does not attempt.
- Nothing here is a recommendation to favour dividend-paying holdings over any other kind, or to reinvest rather than draw an income. Someone already living off portfolio income has a good reason to take dividends as cash; this page only prices the arithmetic of the two paths, not which one is right for a given life.
How it relates to the other tools
The investment growth calculator answers the same "what could this become" question for a single blended return, without separating out a dividend at all — the right tool when the holding does not pay one, or the split does not matter to the question being asked. This page exists for the case where it does: comparing what stays invested against what gets paid out.
Common questions
Is a DRIP the same as automatic reinvestment through a broker?
Does a higher yield always mean a better result?
What if the dividend gets cut?
Not advice. This tool applies arithmetic to assumptions you entered. It does not know your circumstances, your tax position or your goals, and it is not a recommendation to buy, sell or hold anything. Past returns do not predict future ones, and no figure here is a forecast.