Phase 2 · Wealth & Leverage

DRIP Compounder

Reinvested dividends buy shares that buy more shares. Watch the snowball build, your yield-on-cost climb, and see exactly how much reinvesting beats pocketing the cash.

How much does reinvesting dividends actually add?

Reinvested dividends buy shares that pay their own dividends, so the share count compounds alongside the price. Each year new shares = (dividends + contribution) ÷ price, then the price and the dividend per share both grow. Over long horizons the extra shares, not the price gain, do most of the work.

Worked example (defaults on this page): $25,000 plus $3,000/yr at a 3.5% starting yield, 6% dividend growth and 4% price growth reaches $457,367 after 25 years.
The same plan taking dividends as cash ends at $307,779 — reinvesting is worth $149,588, roughly a third of the final balance.
Yield on cost climbs even when the market yield doesn’t: forward dividend income here is $25,772 a year against $100,000 invested — a 25.8% yield on cost.
Dividend growth matters more than starting yield over long horizons. A high yield that never grows is overtaken by a modest one compounding at 6%.

Reinvesting vs taking dividends as cash

Reinvested (DRIP) Dividends taken as cash

Under the hood

The math, fully exposed

We track shares year by year as dividends and contributions buy more of them — and run a no-reinvest twin to isolate the snowball:

Each year: dividends = shares × dividend-per-share

New shares = (dividends + annual contribution) ÷ price

Then: price ×= (1 + appreciation); dividend ×= (1 + dividend growth)

Value = shares × price

Yield on cost = annual dividend income ÷ total invested

The snowball is non-linear: early dividends are tiny, but each reinvestment buys shares that compound for every remaining year — so the benefit accelerates toward the end of the horizon.
Growth beats yield: a moderate yield that grows usually out-compounds a high static yield, because rising dividends lift both your income and your yield on cost over time.
Real vs nominal: these are nominal figures. Subtract inflation if you want the result in today's purchasing power.

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Answers

Frequently asked questions

What is a DRIP (Dividend Reinvestment Plan)?

A DRIP automatically uses each dividend payment to buy more shares instead of paying cash. Those new shares pay their own dividends, which buy still more shares — a compounding snowball. Over long horizons, reinvested dividends have historically driven a large share of total stock-market returns.

What is yield on cost?

Yield on cost is your current annual dividend income divided by what you originally invested — not the current price. As a company raises its dividend year after year, your yield on cost climbs far above the headline yield. A stock bought at a 3.5% yield can pay 8–10%+ on your original cost a couple of decades later.

Does reinvesting dividends really make that big a difference?

Yes — this calculator shows the gap directly. Reinvested dividends buy shares that compound for the rest of the holding period, so the longer the horizon the larger the advantage over taking dividends as cash. The effect is small early and dramatic late, which is the nature of compounding.

What is a dividend yield trap?

An unusually high yield (well above peers) is often a warning, not a gift — it can mean the share price has fallen because the market expects a dividend cut. A sustainable, growing dividend at a moderate yield usually compounds to more than a high but fragile one. Treat very high yields with caution.

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