New to this? Read the plain English guide first.
See how reinvesting dividends can change your result over many years.
A dividend reinvestment plan, or DRIP, uses each dividend payment to buy more shares automatically. Those new shares pay dividends too, so growth compounds. This calculator compares your ending value with and without reinvesting.
With reinvesting, each year the balance grows by the price growth rate and by the dividend yield. Without reinvesting, only the original shares grow, and the dividends are counted as cash received.
Start with $10,000 at a 3 percent yield and 6 percent yearly price growth for 20 years. Reinvesting ends near $60,000 in this simple model. Taking the dividends as cash leaves a smaller combined total, because the cash does not compound. The gap widens with each extra year.
Reinvest dividends when you do not need the income and want to maximize long term growth. Take them as cash when you need the income, such as in retirement. Many brokers let you switch either way.
Assuming steady returns, ignoring taxes on reinvested dividends in taxable accounts and forgetting that a falling share price changes the picture.
Read dollar cost averaging and where to hold your investments. See every term in the investing glossary, try more tools in investor tools, or test yourself in Stock Jeopardy.
For education only, not investment advice. Results are estimates based on the numbers you enter.