A dividend reinvestment plan automatically uses each dividend to buy more shares, which then pay their own dividends. Combined with dividend growth, reinvestment is where most of long-term dividend compounding comes from.

Dividend Calculator

Q: How do I calculate dividend income?

Portfolio value × dividend yield. $100,000 at a 3.5% yield pays $3,500 per year, or about $292 per month, before taxes.

Q: Is a higher dividend yield always better?

No — unusually high yields (say 8%+) often signal a falling share price or an unsustainable payout that may be cut. Many investors prefer moderate yields with consistent dividend growth over maximum current yield.

Q: How much does taking dividends as cash cost you versus reinvesting?

On $100,000 at a 3.5% yield growing 5%/yr with 4%/yr price appreciation over 20 years, reinvesting (DRIP) grows the portfolio to roughly $430,000 with about $15,000/yr in income by year 20. Taking dividends as cash instead leaves the portfolio at only about $219,000 (price growth alone) with about $8,850/yr in income by year 20 — though you'd have collected roughly $115,700 in spendable cash along the way.

Your dividend income today — and what it becomes when you reinvest it while the payout itself grows.

Written by the Calculator Index team · Last reviewed September 2026

Annual dividend income (year 1)

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Monthly income (year 1)

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Portfolio after 20 yrs

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Annual income at end

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Total dividends received

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The dividend math

Annual income = Portfolio value × Yield
With DRIP: each year's dividends buy more shares, and the payout per share grows at the dividend growth rate

Worked example

$100,000 at a 3.5% yield, dividends growing 5%/yr, shares appreciating 4%/yr, reinvested for 20 years:

Year-1 income: $3,500. After 20 years of reinvestment the portfolio reaches roughly $430,000, throwing off about $15,000/yr — the income more than quadruples without adding new money.

Yield vs. growth: the real engine

Dividend compounding has three gears: the starting yield, reinvestment (each dividend buys shares that pay their own dividends), and dividend growth (companies raising payouts annually). Over long horizons the second and third gears dominate — a 2.5% yield growing 8%/yr overtakes a static 5% yield's income within about a decade. Chasing maximum current yield often backfires: double-digit yields usually mean the market expects a cut. Taxes matter too — qualified dividends are taxed at capital-gains rates in taxable accounts (see the capital gains calculator), or grow untaxed inside a Roth IRA. Model the total-return alternative with the investment calculator.

Worked example — taking dividends as cash instead of reinvesting

Same starting point as above — $100,000 at a 3.5% yield, growing 5%/yr, with 4%/yr price appreciation — but this time every dividend is taken as cash rather than reinvested.

Because the yield compounds at 1.05 ÷ 1.04 per year while the portfolio itself only grows at 4%/yr (no new shares purchased), the math simplifies neatly: each year's income is 3,500 × 1.05^{(years elapsed)}.

After 20 years: the portfolio (price growth only) reaches about $219,000, throwing off about $8,850/yr by year 20 — roughly half the income the reinvested version produces. But along the way you'd have collected about $115,700 in spendable cash, money the DRIP version never lets you touch.

DRIP vs. cash payout after 20 years, and common mistakes

	Reinvested (DRIP)	Taken as cash
Portfolio value after 20 yrs	≈$430,000	≈$219,000
Annual income, year 20	≈$15,000	≈$8,850
Cash collected along the way	$0 (all reinvested)	≈$115,700

Forgetting reinvested dividends are still taxable. In a taxable brokerage account, DRIP shares are purchased with dividend income that's taxed in the year it's received, exactly as if it had been paid in cash — reinvestment doesn't defer the tax bill.
Judging a stock by trailing yield alone. A high headline yield without checking the payout ratio (dividends ÷ earnings) can mask a payout that's about to be cut — sustainable payout ratios are typically well under 100% of earnings.
Confusing yield on cost with current yield. After years of growth, your personal yield on cost can look far higher than the stock's current market yield — that's a return on your original purchase, not evidence the stock is newly cheap.

Frequently asked questions

How do I calculate dividend income?

Portfolio × yield: $100,000 × 3.5% = $3,500/yr (~$292/mo) pre-tax.

What is a DRIP?

Automatic reinvestment of dividends into more shares — the main engine of long-term dividend compounding.

Is a higher dividend yield always better?

No — very high yields often signal price declines or unsustainable payouts. Moderate yield + consistent growth usually wins long-term.

How much does taking dividends as cash cost you versus reinvesting?

On the example above, reinvesting grows $100,000 to about $430,000 with $15,000/yr income by year 20. Taking cash instead leaves about $219,000 and $8,850/yr — but you'd have collected roughly $115,700 in spendable cash along the way.

What's the difference between yield on cost and current yield?

Current yield is the dividend divided by today's share price. Yield on cost is the dividend divided by what you originally paid — it can look much higher after years of growth, but it's a personal metric, not a sign the stock is newly cheap.

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Note: Assumes constant yield, growth, and appreciation rates; real dividends get cut, raised, and taxed. Not investment advice. Last reviewed: September 2026.