DRIP (Dividend Reinvestment)
Portfolio growth with dividends reinvested
What is DRIP (Dividend Reinvestment)?
DRIP stands for Dividend Reinvestment Plan, a strategy where dividends received are automatically used to purchase additional shares rather than taken as cash. Over long periods, reinvestment of dividends significantly outperforms taking dividends as cash due to compounding. Historically, dividends have accounted for roughly 40% of the S&P 500's total return since 1926. A DRIP benefits from dollar-cost averaging into additional shares and avoids the behavioural tendency to spend dividends. The compounding effect is most powerful in high-yield stocks held over decades. This calculator shows the difference in terminal wealth between taking dividends as cash versus reinvesting them.
Formula
Shares each period = Previous Shares × (1 + Dividend Yield / n)
Portfolio Value = Shares × Price × (1 + Price Growth)^t
DRIP compounds both price appreciation and dividend reinvestment
n = dividend payments per year
Total return with DRIP = Price return + Dividend return compounded
Calculator
How to Use
- 1Enter initial investment: Starting dollar amount or number of shares × current price.
- 2Enter dividend yield: Current annual dividend yield as a percentage.
- 3Enter expected price growth: Annual capital appreciation assumption (separate from dividend return).
- 4Set time horizon: DRIP benefits compound dramatically over 10-30 year periods.
Worked Example
Example: $10,000 in a 3% yield stock, 7% price growth, 20 years
Initial
$10,000
Div Yield
3%
Price Growth
7%
Years
20
Without DRIP (price return only): $10,000 × (1.07)^20 = $38,697. With DRIP (total return = 10%): $10,000 × (1.10)^20 = $67,275, a $28,578 difference entirely from reinvesting dividends. The 3% annual dividend yield, reinvested and compounded for 20 years, adds 74% more terminal wealth.