Dividend reinvestment
calculator
Dividends look small, 2 or 3 percent a year. Reinvested for decades, they've supplied around 40% of the stock market's entire return. See the gap between reinvesting and pocketing the cash.
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How dividend reinvestment compounds
A DRIP, dividend reinvestment plan, uses each cash payout to buy more shares automatically. Those new shares pay their own dividends, which buy more shares again. Reinvesting effectively adds the yield to your growth rate, and over decades that addition is enormous.
Worked example
Pocketing payouts: ≈ $57,400 shares + ≈ $22,900 cash ≈ $80,300
The DRIP bonus: roughly $35,000 from the same starting dollar.
The honest caveats
The model assumes steady rates, real yields and growth wobble, dividends get cut, and taxes may be due on reinvested payouts in taxable accounts. Historically, though, the direction is unambiguous: reinvested dividends account for a large share of long-run stock returns, which is why the S&P 500 calculator uses total returns throughout.
Dividend reinvestment FAQ
A dividend reinvestment plan: each cash dividend automatically buys more shares, which then earn their own dividends. It turns income into compounding growth without any action from you.
Large over time. At a 2.5% yield and 6% price growth, $10,000 becomes roughly $115,600 in 30 years reinvested, versus about $80,300 if payouts are pocketed, a gap of some $35,000 from the same start.
Yes, reinvested dividends have contributed roughly 40% of the US market's total return over the past century. Price-only charts significantly understate what investors actually earned.
In taxable accounts, usually yes, dividends are generally taxable in the year paid even if reinvested. Tax-advantaged retirement accounts avoid the annual drag. Rules vary; check your own situation.