DRIP Calculator
Dividend Reinvestment (DRIP) Calculator
What a dividend-paying share could grow to if every dividend buys more shares, side by side with taking the dividends as cash — on the growth rates you assume, which are not promises.
Dividend reinvestment
$1,00,000 in a $500 share yielding 3%, paid twice a year; dividends grow 6% and the price 7% a year, for 20 years
Reinvesting year by year
- k
- dividend payments a year; each buys shares at that year’s price
- a × r^(y−1)
- one payment as a fraction of the share price in year y: the yield changes if dividends and the price grow at different rates
- value
- shares × the price at the end of the year; the cash path adds up the dividends received
Worked example
$1,00,000 in a $500 share yielding 3%, paid twice a year; dividends grow 6% and the price 7% a year, for 20 years
Shares at the start = 1,00,000 ÷ 500 = 200
Year 1: two payments of 1.5% of the price each: 200 × 1.015² = 206.0450 shares
After 20 years: 345.21 shares × $1,934.84 = $6,67,936
Taken as cash: 200 × 1,934.84 + $1,10,357 of dividends = $4,97,325
How reinvesting dividends compounds, and the assumptions behind it
A dividend reinvestment plan, or DRIP, uses each dividend to buy more shares, which then earn dividends of their own. Taken as cash, the dividends stop at the shares you started with. In the example, $1,00,000 at a 3% yield, with dividends growing 6% and the price 7% a year, is worth $6,67,936 after 20 years with dividends reinvested and $4,97,325 with them taken as cash, a gap of $1,70,610. In today’s money, at 4% inflation, the reinvested figure is $3,04,837. The chart shows both paths and the amount you put in.
The page keeps the model simple and says how. Prices and dividends step up once a year; every dividend in a year buys shares at that year’s price, fractions included; the cash path counts dividends at face value, not invested anywhere. Real prices move every day and fall as well as rise, and dividends can be cut or stopped. Because the yield is today’s dividend ÷ today’s price, if the price grows faster than the dividend, each rupee of dividend buys less and the yield on new shares falls.
In India, few listed companies run formal DRIPs, so investors usually reinvest by hand, paying brokerage and buying whole shares. For mutual funds the closest match is the growth option, which keeps the income inside the fund, or the reinvestment choice under what funds now call the IDCW (income distribution cum capital withdrawal) option. Tax: dividends are generally taxed as income in the year they are paid, even when reinvested, so tax would reduce the reinvested path; rules differ by country and the page shows figures before tax. For the yield itself see the dividend yield calculator; for a single sum at a fixed rate, the lumpsum calculator; and to check a return after inflation, the real return calculator. This is arithmetic on the figures you enter, not financial advice.
Frequently asked questions
What is a DRIP?
A dividend reinvestment plan: each dividend buys more shares of the same company or fund instead of being paid out, so the holding grows in shares as well as in price.
How much difference does reinvesting dividends make?
In the example, $6,67,936 against $4,97,325 after 20 years at a 3% yield. The gap grows with the yield and the number of years, and depends on the growth rates you assume.
Are reinvested dividends taxed?
Generally yes. In India dividends are taxed as the shareholder’s income in the year paid, whether or not they are reinvested. The page shows figures before tax.
Can I use a DRIP with Indian shares or mutual funds?
Few Indian companies offer formal DRIPs, so reinvesting is usually done by buying shares yourself. Mutual funds offer a growth option, and an IDCW option with reinvestment.
Related calculators
References
- Bodie Z, Kane A, Marcus AJ. Investments. McGraw-Hill. Holding-period return, transaction costs, risk-adjusted performance (the Sharpe ratio), dividend reinvestment and total return, and asset allocation.
- SEBI / Association of Mutual Funds in India (AMFI). Mandatory risk statement for mutual fund communications: “Mutual fund investments are subject to market risks, read all scheme related documents carefully.”
- Central-bank inflation targets used as default inflation by currency: Reserve Bank of India (4% CPI, flexible inflation targeting framework); U.S. Federal Reserve (2% PCE); European Central Bank (2%); Bank of England (2% CPI); Bank of Canada (2%); Reserve Bank of Australia (2–3%); Bangko Sentral ng Pilipinas (3% ± 1). Actual inflation often runs above target.