A dividend reinvestment plan automatically uses each dividend to buy more shares, which then pay their own dividends. Combined with dividend growth, reinvestment is where most of long-term dividend compounding comes from.

Dividend Calculator

Q: How do I calculate dividend income?

Portfolio value × dividend yield. $100,000 at a 3.5% yield pays $3,500 per year, or about $292 per month, before taxes.

Q: Is a higher dividend yield always better?

No — unusually high yields (say 8%+) often signal a falling share price or an unsustainable payout that may be cut. Many investors prefer moderate yields with consistent dividend growth over maximum current yield.

Your dividend income today — and what it becomes when you reinvest it while the payout itself grows.

Annual dividend income (year 1)

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Monthly income (year 1)

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Portfolio after 20 yrs

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Annual income at end

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Total dividends received

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The dividend math

Annual income = Portfolio value × Yield
With DRIP: each year's dividends buy more shares, and the payout per share grows at the dividend growth rate

Worked example

$100,000 at a 3.5% yield, dividends growing 5%/yr, shares appreciating 4%/yr, reinvested for 20 years:

Year-1 income: $3,500. After 20 years of reinvestment the portfolio reaches roughly $430,000, throwing off about $15,000/yr — the income more than quadruples without adding new money.

Yield vs. growth: the real engine

Dividend compounding has three gears: the starting yield, reinvestment (each dividend buys shares that pay their own dividends), and dividend growth (companies raising payouts annually). Over long horizons the second and third gears dominate — a 2.5% yield growing 8%/yr overtakes a static 5% yield's income within about a decade. Chasing maximum current yield often backfires: double-digit yields usually mean the market expects a cut. Taxes matter too — qualified dividends are taxed at capital-gains rates in taxable accounts (see the capital gains calculator), or grow untaxed inside a Roth IRA. Model the total-return alternative with the investment calculator.

Frequently asked questions

How do I calculate dividend income?

Portfolio × yield: $100,000 × 3.5% = $3,500/yr (~$292/mo) pre-tax.

What is a DRIP?

Automatic reinvestment of dividends into more shares — the main engine of long-term dividend compounding.

Is a higher dividend yield always better?

No — very high yields often signal price declines or unsustainable payouts. Moderate yield + consistent growth usually wins long-term.

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Note: Assumes constant yield, growth, and appreciation rates; real dividends get cut, raised, and taxed. Not investment advice. Last reviewed: July 2026.