Dividend Calculator

Measure	Reinvest (your choice)	Take as cash
Worth at the end	$163,765$31,596 more	$132,169
Dividends earned	$53,595	$37,489
Income in the final year	$6,595	$3,894
Cash paid to you along the way	$0	$37,489

Reinvest (your choice)

Take as cash

Worth at the end

$163,765$31,596 more

$132,169

Dividends earned

$53,595

$37,489

Income in the final year

$6,595

$3,894

Cash paid to you along the way

$37,489

What this calculator assumes

The dividend and the share price grow at steady yearly rates. Real ones go up and down, and companies can cut or stop their dividends.

Dividends are paid every three months on the shares you hold. Reinvested dividends buy shares at that day’s price, with no fees, and fractional shares are allowed.

Monthly contributions are invested at the end of each month.

Figures are before tax and fees. In a taxable account, dividends are taxed in the year they’re paid, even if you reinvest them.

Dividends you take as cash are spent or kept aside: they aren’t invested and don’t earn interest.

These are estimates to help you understand the numbers, not financial advice. Check the exact figures with your lender or a qualified adviser before making a decision.

What is a dividend?

A dividend is part of a company’s profit paid out to the people who own its shares. Companies that pay them usually do so on a regular schedule, often every three months. Funds that hold dividend-paying companies pass those dividends on to you too.

Dividends are one of the two ways shares make you money. The other is the share price rising. Add the two together and you get your total return, which is the fairest way to compare investments.

How the dividend yield works

The dividend yield is a year’s dividends divided by the share price. A $50 share paying $2 a year yields 4%. On $10,000 invested, a 4% yield pays about $400 a year.

The yield changes as the price moves. If the dividend grows faster than the share price, the yield on your original money keeps climbing. That’s why the calculator shows your yield on what you put in separately from the starting yield.

Why reinvesting makes such a difference

When you reinvest, each dividend buys more shares. Those new shares pay dividends of their own, which buy still more shares. It works like compound interest: slow at first, then faster every year. Many companies and brokers offer a dividend reinvestment plan (DRIP) that does this automatically; check whether yours charges a fee.

Taking the dividends as cash gives you income now, which is useful in retirement or if you need the money. The trade-off is that your investment grows more slowly, and so does its future income.

Worked example

Say you invest $10,000 and add $200 a month for 20 years, in shares with a 3.5% dividend yield. The dividend grows 5% a year and the share price 4% a year. You put in $58,000 in total.

Reinvesting every dividend, it grows to about $163,765, and in the last year it pays $6,595 in dividends.
Taking the dividends as cash, you’re paid $37,489 along the way and your shares end up worth $94,680, about $132,169 in total. The last year pays $3,894.

Reinvesting ends up $31,596 ahead, and its yearly income is $2,701 higher, because every reinvested dividend buys shares that pay dividends of their own.

Things to keep in mind

Dividends aren’t guaranteed. A company can cut or cancel its dividend at any time, and many do in hard years. Owning lots of companies, for example through a low-cost index fund, spreads that risk.
A yield that looks unusually high is often a warning, not a bargain: the share price may have fallen because investors expect the dividend to be cut. Check that the company’s profits cover it.
In a taxable account you owe tax on dividends in the year they’re paid, even if you reinvest them. An IRA or 401(k) can delay or avoid that.
Fees come out of your return every year. A 1% yearly fee on $100,000 is $1,000, every year, whether the market is up or down.

Frequently asked questions

What is a dividend yield?

It’s a year’s dividends divided by the share price. A share that costs $50 and pays $2 a year in dividends has a 4% yield. Because the price moves every day, the yield moves too: when the price falls and the dividend stays the same, the yield rises.

Should I reinvest my dividends?

If you don’t need the income yet, reinvesting usually grows your investment faster: each dividend buys more shares, and those shares pay dividends of their own. If you rely on the income to cover bills, taking the cash can make more sense. The comparison table above shows the difference for your numbers.

Are reinvested dividends taxed?

In a regular taxable account, yes. The IRS says you must still report dividends as income even when you use them to buy more shares. In tax-advantaged accounts such as IRAs and 401(k)s, dividends generally aren’t taxed in the year they’re paid.

How much do I need to invest to live off dividends?

Divide the yearly income you want by the yield you expect. At a 4% yield, $40,000 a year of dividends needs about $1,000,000 invested; at 3%, about $1,333,000. Remember that dividends can be cut, so it’s risky to depend on a small number of companies.

Are dividends guaranteed?

No. A company chooses whether to pay a dividend and how much. It can cut the dividend or stop paying it altogether, especially when profits fall. Spreading your money across many companies, for example through a fund, lowers the risk of losing a big part of your income at once.

What is a good dividend yield?

There’s no single right number. A very high yield can be a warning sign: it often means the share price has fallen because investors expect the dividend to be cut. Compare a company’s yield with similar companies, and look at whether its profits comfortably cover the dividend.

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