Dividend Investing with DRIP
DRIP automatically reinvests dividends to buy more shares, creating powerful compounding.
Key Metrics
| Metric | Formula |
|---|---|
| Dividend Yield | Annual Dividend / Share Price |
| Yield on Cost | Current Dividend / Original Cost |
| Payout Ratio | Dividends / Net Income |
How to Use This Dividend Calculator
Enter your investment amount, dividend yield, dividend growth rate, and investment horizon. The calculator projects dividend income growth and total returns with DRIP.
Formula & How It Works
Annual Dividend = Investment Γ Yield. With DRIP: each dividend payment buys more shares, compounding future dividends. Yield on Cost = Current Dividend / Original Price.
Calculation Example
Investing $50,000 at 3.5% yield with 6% annual dividend growth and DRIP: Year 1 dividends = $1,750. By year 20, annual dividends reach ~$7,800 (yield on cost: 15.6%).
Expert Tips
Focus on dividend growth rate, not just current yield. A 2% yield growing 10%/year beats a 5% yield growing 2%/year within about 12 years. Reinvest dividends for compounding.
Frequently Asked Questions
Are dividends taxed?
Qualified dividends are taxed at 0%, 15%, or 20% long-term capital gains rates. Non-qualified dividends are taxed as ordinary income.
What is a Dividend Aristocrat?
An S&P 500 company that has increased its dividend for at least 25 consecutive years. Examples: Coca-Cola, Johnson & Johnson.
Is a high dividend yield always better?
Not necessarily. Very high yields (8%+) can signal financial distress. Look for moderate yields (2-5%) with consistent growth.