A dividend reinvestment plan (DRIP) uses each dividend payment to buy more shares automatically, rather than paying it out as cash — so next year’s larger share count earns a larger dividend, which buys still more shares.
How it works
Each year, the dividend paid (shares owned × dividend per share) buys more shares at that year’s price. Those new shares are added to the count before the next year’s dividend is calculated — the same compounding logic as reinvested interest, just paid in shares instead of cash.
Two growth rates doing the work
The share price and the dividend per share can grow at different rates, and both matter: a rising dividend means each year’s payout buys proportionally more, while a rising share price means each dollar of dividend buys fewer new shares — the two effects pull in opposite directions on how many new shares get added.
How to use this calculator
- Enter the shares owned today and the current share price.
- Enter the current annual dividend per share.
- Enter expected annual growth rates for the dividend and the share price, and how many years to project.
Frequently asked questions
Does this account for taxes on reinvested dividends?
No — in a taxable account, reinvested dividends are still typically taxable income in the year received, even though no cash reaches your pocket. This calculator shows the share and value growth only.
What if the dividend growth rate is higher than the price growth rate?
Reinvestment happens faster in share count, since a shrinking-relative-to-dividend price buys more new shares each year — a real, if optimistic, compounding effect.
Is a DRIP the same as buying more shares manually with the cash?
Mathematically similar, but many company and brokerage DRIPs buy at little or no commission and sometimes a small discount, which a manual repurchase might not get.
What happens if the company cuts its dividend?
This calculator projects a constant growth rate for simplicity — a real dividend cut would slow or reverse the share accumulation this model assumes continues steadily.
