Model a dividend position over time with dividends automatically reinvested — and see how it compares to taking the dividends as cash.
Value with dividends reinvested
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Each dividend you reinvest buys additional shares. Those shares pay their own dividends next year, which buy still more shares. It's the same compounding math as interest — but with two growth engines running at once: the dividend per share grows, and your share count grows.
This calculator simulates the position year by year: it pays the year's dividend based on your current share count and dividend-per-share, buys new shares at the current price, then grows both the price and the dividend for the following year.
As the payout grows and your share count climbs, the dividends you receive each year rise relative to your original investment. A position bought at a 3% yield can, after a couple of decades of dividend growth and reinvestment, generate double-digit annual income as a percentage of what you first paid. That figure — yield on cost — is shown in the results panel.
Real dividends aren't guaranteed: companies cut them in recessions, and this model assumes smooth constant growth that markets never actually deliver. In taxable accounts, reinvested dividends are still generally taxed in the year they're paid, which this simplified model ignores. Treat the output as a way to understand the mechanics, not a forecast.
A dividend reinvestment plan automatically uses each cash dividend to buy more shares — often fractional — of the same stock or fund. The added shares then earn their own dividends.
Over long horizons, yes — reinvested dividends have historically contributed a substantial share of total stock market returns, because each reinvested payout buys shares that produce future payouts of their own.
In taxable accounts, dividends are generally taxable in the year received even when reinvested. In retirement accounts they typically compound without annual tax. Ask a tax professional about your situation.