Methodology
How dividend reinvestment compounds, and exactly how this calculator models it
A dividend reinvestment plan takes each cash distribution and immediately buys more shares of the same holding. Those extra shares pay their own dividend at the next distribution date, which buys more shares again. That loop — the dividend snowball — is why a DRIP calculator produces a curve rather than a straight line, and why the gap between reinvesting and taking cash widens the longer the horizon runs.
This calculator steps through your horizon one month at a time. Each month it applies contributions on the timing you chose, grows the balance by the de-annualised capital growth rate, credits dividends when a distribution is due, deducts the fee, and records the result. Three portfolios run in parallel under identical assumptions — reinvested, cash, and a no-dividend baseline — so the comparison comes from one simulation instead of three separate approximations.
The formulas
Every figure on this page comes from these five equations. They are published so any result can be reproduced and checked independently.
- Monthly growth from an annual rate
monthlyGrowth = (1 + annualCapitalGrowth) ^ (1 / 12) − 1The annual rate is de-annualised geometrically, not divided by twelve, so twelve months of growth compounds back to exactly the annual figure.
- Dividend accrued each month
monthlyDividend = balance × (yield × (1 + dividendGrowth) ^ yearIndex) ÷ 12The yield itself is grown once per completed year, which is what produces a rising yield on cost.
- Distribution actually reinvested
reinvested = accruedDividend × (1 − taxRate)Tax is taken out before the distribution is put back to work, matching how a taxable brokerage account behaves.
- Fee drag
monthlyFee = balance × (annualFeeRate ÷ 12)Charged against the balance every month, so the drag compounds against the position.
- Real value in today’s money
realValue = nominalValue ÷ (1 + inflation) ^ yearsApplied to the ending balance to restate it in current purchasing power.
What the model deliberately does not do
It does not simulate volatility, sequence-of-returns risk, dividend cuts, share buybacks, currency movement, or changes to tax law. It applies one flat dividend tax rate rather than distinguishing qualified from ordinary dividends. Real markets deliver returns unevenly, so treat a single output as one scenario among many rather than a forecast. Running three or four sets of assumptions and reading the range is the honest way to use it.
Step by step
How to use this calculator
- 1Enter your starting positionPut in the amount already invested and the amount you add each month, quarter, or year. If you are starting from zero, leave the initial investment at 0.
- 2Set the yield and growth assumptionsEnter the dividend yield of the stock, ETF, or index you are modelling, and the annual capital growth you expect from the share price itself. These are separate inputs because they compound differently.
- 3Choose whether dividends are reinvestedToggle reinvestment on to buy more shares with every distribution, or off to take the dividends as cash. The comparison panel shows both outcomes side by side.
- 4Refine with tax, fees, and inflationOpen advanced assumptions to add a dividend tax rate, annual fund fees, an annual contribution increase, and an inflation rate so you can read the result in today’s money.
- 5Read the projection and the breakdownThe headline figure is the projected portfolio value. The year-by-year table splits it into your contributions, reinvested dividends, and inflation-adjusted real value.
Worked example
A worked example you can reproduce
| Initial investment | $10,000 |
| Monthly contribution | $500 |
| Annual contribution increase | 2% |
| Dividend yield | 3.2% |
| Dividend growth | 1% a year |
| Capital growth | 6% a year |
| Annual fees | 0.10% |
| Dividend tax | 0% |
| Time horizon | 20 years |
These are the values the calculator loads by default, so you can verify every figure below by opening this page and reading the results panel without changing anything.