Explain it like I’m 5
Imagine you own a few slices of a lemonade stand. Every few months, the stand shares some of the money it made with everyone who owns a slice. That “thank-you money” is a dividend.
You can spend it — or you can use it to buy more slices. That’s called DRIP (dividend reinvestment). More slices mean bigger thank-you payments next time, which buy even more slices. It snowballs.
This calculator shows how big your pile of slices — and your yearly dividend income — could get over the years, and how much faster it grows when you reinvest instead of spending.
Words you’ll see, in plain English
- Dividend
- A slice of a company’s profit that it hands out to the people who own its shares — like a thank-you payment.
- Dividend yield
- How much a stock pays in dividends each year compared with its price. A $100 share that pays $3 a year has a 3% yield.
- DRIP (dividend reinvestment)
- Using your dividends to automatically buy more shares, so next time you get even bigger dividends.
- Yield on cost
- Your yearly dividends compared with what you originally paid. It grows when companies raise their dividends.
- Stock / share
- A tiny piece of a company. Own one share of a company with a million shares, and you own one-millionth of it.
- Compound interest
- Interest that earns its own interest. Like a snowball rolling downhill: the bigger it gets, the faster it grows.
More money words explained simply in our glossary.
How to use this dividend calculator
- Initial investment and monthly contribution — what you invest today and what you plan to add each month.
- Dividend yield — the stock’s or fund’s annual dividend divided by its share price. You can find it on any quote page.
- Dividend growth — how fast the dividend per share is expected to rise each year. Established dividend growers have historically raised payouts by mid-single digits per year, but past growth is not guaranteed.
- Share price growth — expected price appreciation, separate from dividends.
- DRIP — turn reinvestment on to buy more shares with each payout, or off to take dividends as cash.
How dividend reinvestment (DRIP) compounds
When you reinvest, every dividend buys more shares. Next quarter, those extra shares pay dividends too, which buy still more shares. Over a few years the effect is small; over 20–30 years it is often the difference between a portfolio that pays for your groceries and one that pays for your life. Toggle DRIP off and on above to see the gap for your own numbers.
The math behind the calculator
Each month the calculator:
- Buys shares with your monthly contribution at the current price.
- Grows the share price by your expected price growth (spread evenly across the year).
- On payout months, pays a dividend of
shares × annual dividend per share ÷ payouts per year, minus tax. - With DRIP on, uses that dividend to buy more shares at the current price; otherwise it is kept as cash.
The dividend per share starts at your yield on the starting price and increases by your dividend growth rate once a year.
Annual income = shares owned × annual dividend per share × (1 − tax rate)
Example: $10,000 plus $500 a month for 20 years
With the default inputs — a 3.5% yield, 5% annual dividend growth, 4% price growth, quarterly payouts, 15% tax and DRIP turned on — the calculator projects the income shown above. Try turning DRIP off: total dividends received climb more slowly because the payouts no longer buy new income-producing shares.
Dividend yield vs. yield on cost
Dividend yield is today’s annual dividend divided by today’s price — it is what a new buyer gets.Yield on cost is your annual dividend income divided by what you actually invested. If a company keeps raising its dividend, your yield on cost can end up far higher than the current yield, which is why long-term dividend investors watch it.
Limits of any dividend projection
- Dividends are not guaranteed; companies can cut or suspend them.
- Share prices do not grow in a straight line — real returns arrive in an uneven sequence.
- Taxes depend on account type, whether dividends are qualified and your income. Check current IRS rules or a tax professional.
- Fund expense ratios and trading costs are not included.
Frequently asked questions
What is DRIP?
DRIP stands for dividend reinvestment plan. Instead of paying dividends to you as cash, your broker uses them to buy more shares (often fractional shares) of the same stock or fund. Those new shares then earn their own dividends, which is what makes dividend income compound.
How much do I need to invest to make $1,000 a month in dividends?
Divide the annual income you want by the dividend yield. $1,000 a month is $12,000 a year, so at a 3% yield you would need about $400,000, and at a 4% yield about $300,000, before taxes. Use the calculator to see how long it would take to get there with regular contributions and reinvestment.
What is a good dividend yield?
Broad US stock indexes have yielded roughly 1–2% in recent years, while dividend-focused funds often yield around 3–4%. Very high yields (say 8% and up) can be a warning sign that the market expects the dividend to be cut. A sustainable, growing dividend usually matters more than the highest current yield.
What is yield on cost?
Yield on cost is your current annual dividend income divided by the total amount you have invested. If dividends grow over time, your yield on cost rises even if the stock’s current yield stays the same. The calculator shows it in the year-by-year table.
Are dividends taxed if I reinvest them?
In a regular US taxable brokerage account, yes — reinvested dividends are taxed in the year they are paid, just like cash dividends. Qualified dividends are taxed at long-term capital gains rates (0%, 15% or 20%), and non-qualified dividends at ordinary income rates. Dividends inside an IRA, 401(k) or similar account are not taxed each year. Enter 0% tax to model a tax-advantaged account.
Does the calculator account for share price growth?
Yes. Enter an expected annual share price growth rate. The dividend yield you enter is applied to the starting price, and the dividend per share then grows by the dividend growth rate each year — so price growth and dividend growth are modeled separately, as they are in real life.
These results are estimates for education only, based on the assumptions you enter. They are not financial, investment or tax advice. Real returns, rates and taxes vary. See our methodology anddisclaimer.