Dividend calculator: income, growth and DRIP

Written by the Tactfolio research teamPublished 4 min read

A dividend is cash a company pays to the people who own its shares, often every three months. This dividend calculator shows how much income your shares could pay over the years, and what happens when you reinvest it. It uses a steady yield and steady growth, so treat the result as a sketch, not a forecast.

  • Yearly dividends = shares you own × dividend per share.
  • Dividend yield = yearly dividend per share ÷ share price.
  • $10,000 at a 3% yield pays $300 in the first year.
  • Reinvesting buys more shares, and those shares pay dividends too.
  • Companies can cut or stop a dividend at any time.

Result

Value of your shares at the end
$46,609.57
Dividends in the last year
$1,294.71
Total dividends over all years
$13,728.59

How to use the dividend calculator#

Type how much you invest at the start and how much you add each year. Then type the dividend yield, how fast the dividend grows each year, and how fast the share price grows. Pick the number of years and whether you reinvest. The calculator shows what your shares are worth at the end, the dividends in the last year, and the total dividends you got.

The starting numbers are round examples. They are not a forecast for any stock or fund.

How do you calculate dividend income?#

Dividend income is the number of shares you own times the dividend each share pays.

yearly dividends = shares × dividend per share
dividend yield = dividend per share ÷ share price
next year's dividend per share = dividend per share × (1 + dividend growth)
new shares from reinvesting = dividends ÷ share price

The calculator works one year at a time. Each year it pays the dividend and grows the share price. Then it buys new shares with the dividend, if you reinvest, and with the money you add. Using dividends to buy more shares is called a dividend reinvestment plan, or DRIP.

A worked example#

Say you put $10,000 into a stock with a 3% dividend yield. The dividend grows 5% a year, and so does the share price. You add nothing more, and you reinvest every dividend.

  1. Year 1 dividends: $10,000 × 3% = $300.
  2. You reinvest the $300, so you own more shares.
  3. Year 2 dividends: $324. Both your shares and the dividend per share grew.
  4. After 20 years, your shares are worth $46,609.57. The last year pays $1,294.71.

Here the dividends add 3% a year and the price adds 5%. Reinvested, that is 8% a year. $10,000 grown by 8% a year for 20 years is $46,609.57.

Now take the dividends as cash instead. After 20 years, your shares are worth $26,532.98, and you got $9,919.79 in cash along the way. Reinvesting left you with about $10,000 more.

What is a good dividend yield?#

There is no single right number. A higher yield pays more cash today. But a very high yield can be a warning sign. It often means the share price fell because investors fear a dividend cut. A lower yield that grows every year can pay more in the long run.

In the example, the last year pays $1,294.71. That is about 13% of the $10,000 you first put in. This number is called yield on cost.

Is a dividend free money?#

No. When a company pays a dividend, its share price usually drops by about the same amount. The cash moves from the company to you. What counts is the total return: the price change plus the dividends.

In a taxable US account, dividends are usually taxed in the year you get them, even when you reinvest them. The calculator leaves out taxes and fees.

Common mistakes with dividends#

  • Chasing the highest yield. A high yield can come right before a cut.
  • Forgetting the price. A 5% yield does not help much if the price falls 20%.
  • Treating dividends as certain. Companies can cut dividends in a bad year, often when you need the income most.
  • Leaving out taxes. Taxes on dividends lower what you can reinvest.

Try it on Tactfolio#

Tactfolio backtests reinvest dividends. Its prices are adjusted for them, so each backtest shows the total return of every stock or fund it holds. In the Tactfolio strategy builder you can test a rule that holds dividend ETFs on past prices. How backtests work explains the data and the costs. To turn a start and end value into a yearly rate, try the CAGR calculator. To find what you paid across several buys, try the stock average calculator. To test whether savings last through good and bad years, try the Monte Carlo simulator. Every tool is on the free trading calculators page.

Common questions#

How much do I need to invest to make $1,000 a month in dividends?#

$1,000 a month is $12,000 a year. At a 3% yield, you need $12,000 ÷ 3% = $400,000. At a 4% yield, you need $300,000. Higher yields need less money but often carry more risk.

What is a dividend reinvestment plan (DRIP)?#

A DRIP uses your dividends to buy more shares of the same stock or fund, instead of paying you cash. Over time, the new shares pay dividends of their own.

How often are dividends paid?#

Most US companies pay every three months. Some pay every month, some twice a year, and some once a year. The yield in the calculator is the total for a year.

Is dividend income taxed?#

In a taxable US account, yes. It is usually taxed in the year you get it, even when you reinvest it. Some dividends, called qualified dividends, get a lower tax rate. Retirement accounts follow other rules.

What is the difference between dividend yield and dividend growth?#

Yield is the yearly dividend as a share of today’s price. Growth is how fast the dividend per share rises each year. A stock can have a low yield and fast growth, or the other way around.

Sources

Understand the numbers