What Is a DRIP?

DRIP stands for Dividend Reinvestment Plan. Instead of taking your dividend payments as cash, your broker automatically buys more shares of the same stock or ETF. Those new shares then earn their own dividends — and the cycle repeats. Most brokers let you enable DRIP with a single checkbox, at no extra cost.

How to Use This DRIP Calculator

Enter your initial investment and stock price to set the starting point. Then input the annual dividend yield — use the current trailing yield, not your yield on cost. The dividend growth rate is how fast the company raises its dividend each year; 5-8% is typical for quality dividend growers like Dividend Aristocrats.

The DRIP reinvestment rate defaults to 100% (full reinvestment). Dial it down to 50% if you want to take half the dividends as cash and reinvest the rest. The share price appreciation is separate from dividend growth — a stock can rise in price while also growing its dividend. Historically, the S&P 500 delivers roughly 2% from dividends and 8% from price growth.

The chart shows the gap between DRIP on and DRIP off over time — the longer the period, the wider the spread. Try running the numbers at 10, 20, and 30 years to see how compounding accelerates.

Frequently Asked Questions

What is a DRIP calculator?

A DRIP calculator estimates how much your investment grows when dividends are automatically reinvested to buy more shares, versus taking them as cash. It factors in dividend yield, dividend growth, share price appreciation, and your reinvestment rate to project your total portfolio value over time.

How is DRIP return calculated?

Each year, your total shares multiplied by the dividend per share equals your dividend income. With DRIP on, that income buys additional shares at the current market price. Those new shares then earn dividends the following year. The calculator runs this loop year by year and compares the final value against the no-DRIP scenario.

Is DRIP worth it for small portfolios?

Yes — DRIP benefits portfolios of any size. On a $5,000 investment yielding 3.5%, DRIP adds roughly $3,000 in extra value over 20 years compared to taking dividends as cash. The effect scales with time more than with initial investment size.

Does DRIP work in a taxable account?

DRIP works in any account, but in taxable accounts each reinvested dividend is a taxable event — you'll owe taxes on dividends even though you never received the cash. In tax-advantaged accounts like IRAs and 401(k)s, DRIP compounds tax-free or tax-deferred, making it especially powerful.

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