Dividend Calculator: Income, Yield on Cost and DRIP Growth

How to use the dividend calculator

1. Choose whether the dividends are reinvested in more shares (DRIP) or taken as cash.
2. Enter the amount you invest, the share price and the annual dividend per share, the sum of the payments over a year.
3. Add an expected yearly growth rate for the dividend and for the share price. Use modest numbers; zero is a valid test.
4. Pick the number of years and read the income in the last year, the yield on your original cost, the total received and the end value.
5. Open the year-by-year table to see how the income builds up, and compare the two choices with the same inputs.

The dividend formulas in plain words

The yield today is the annual dividend divided by the share price. Each year, the income is the number of shares you hold times that year’s dividend per share; then the dividend and the price grow by the rates you entered.

With reinvestment, each year’s income buys more shares at the year-end price, so the next year’s income comes from a larger number of shares. Yield on cost compares a year’s income with the amount you first invested.

Worked example

You invest $10,000 in a stock at $50.00 that pays $2.00 a year, a 4.00% yield, and assume the dividend and the price both grow 5% a year for 10 years.

• You start with $10,000 ÷ $50.00 = 200 shares, and year 1 pays 200 × $2.00 = $400.00.
• With DRIP, year 10 pays $868.76, an 8.69% yield on your original $10,000. Over 10 years you receive $6,077.17, and the shares end up worth $23,673.64.
• Taking the dividends as cash, year 10 pays $620.53, you receive $5,031.16 in total and the 200 shares end up worth $16,288.95, or $21,320.10 with the cash.
• The difference comes from the extra shares that reinvested dividends buy, each one paying its own dividend the following year.