How the Dividend Calculator works

The formula

Step by step

1. Each year, dividends are paid on your current share count at the current dividend-per-share.
2. With DRIP on, dividends buy more shares at the projected price; with it off, they accumulate as cash.
3. The dividend per share grows each year by your dividend-growth rate; the share price grows by your appreciation rate.
4. Yield on cost = current annual dividend income ÷ what you originally invested — it rises as payouts and share count grow.
5. A worked example using the calculator's own defaults: $25,000 at a 3.5% yield, dividends growing 6% a year, price appreciating 5% a year, $3,000 added annually, 25 years, DRIP on. The position ends at $468,014 having received $166,243 in cumulative dividends, with year-25 income of $18,678 against $100,000 contributed — a yield on cost of 18.7%. Turn DRIP off and the same inputs end at $332,100.
6. Reinvested dividends buy at the END-of-year price, after that year's appreciation. Year one on the defaults pays exactly $875 — 3.5% of $25,000 — and buys 8.33 shares at $105, not at the $100 they were bought at. Assuming the cheaper start-of-year price would flatter every result on the page.
7. Dividend growth starts in year TWO. The first year's payout is the stated yield on the stated investment and nothing else, so the number you see first is the number you can check by hand.

Assumptions & limitations

• Constant yield, dividend-growth, and appreciation rates — real dividends can be cut and prices fall.
• Pre-tax; qualified dividends are normally taxed at capital-gains rates (tax-free in a Roth).
• A normalized model — results scale with your inputs and don't track a specific ticker.
• Dividends are paid once a year. Almost every US dividend payer pays quarterly, and quarterly reinvestment buys slightly more shares over a long horizon, so the DRIP figures here are a floor rather than a target.
• Shares are fractional and always buyable. The model never rounds down to a whole share and never leaves a cash remainder, which real brokers and transfer agents sometimes do.
• If you enter a dividend tax rate, only the NET dividend is reinvested but the cumulative-dividends line still reports the GROSS amount received. On the defaults a 15% rate ends at $419,222 rather than $468,014 — the two lines do not describe the same money.
• Yield on cost divides the current year's dividend income by everything you have contributed, including later additions, so adding money resets the figure downward even though nothing about the payout changed.