How to use the dividend calculator
- Enter the amount invested and the share price.
- Tell the calculator the dividend yield or the annual dividend per share, and how often dividends are paid.
- Set the years to hold, the expected yearly dividend growth and yearly share price growth. These are example values to replace with your own.
- Tick or clear Reinvest dividends (DRIP) and read the income, shares and value. The table shows milestone years, and the CSV has every year.
Formula
Shares bought = amount invested / share price
Year 1 dividend per share = share price x yield (or the dollar amount you enter)
Dividend per share in year y = year 1 amount x (1 + dividend growth)^(y - 1)
Each payment = shares x annual dividend per share / payments per year
With DRIP: new shares = payment / share price on the payment date
The share price grows smoothly between payments, so a quarterly payment in year 2 uses a price between the end of year 1 and the end of year 2.
Worked examples
Reinvesting: $10,000 at $50 a share buys 200 shares. A 3% yield means $1.50 a share a year, paid quarterly. With dividends growing 5% a year, the share price growing 4% a year and every dividend reinvested, year 1 pays $303.34 and year 10 pays $618.78. Total dividends over 10 years are $4,437.80, and you finish with 271.213 shares worth $20,073.07.
Taking the cash: with the same inputs and no reinvestment, the share count stays at 200. Dividends are $300.00 in year 1 and $465.40 in year 10, for $3,773.37 in total, and the shares are worth $14,802.44. Adding the cash, the total is $18,575.81.
Monthly income check: 200 shares paying $1 a year each, with no growth, give $200.00 a year, or $600.00 over 3 years.
Yield or dividend per share
Dividend yield is the annual dividend per share divided by the share price. If a stock pays $1.50 a year and trades at $50, the yield is 3%. Use whichever number you have. Because the yield changes whenever the price moves, a dollar amount per share is more stable for planning an income stream, while yield is more handy for quick comparisons.
What reinvesting does
With reinvestment, each payment buys more shares, and those shares pay future dividends. In the example, reinvesting lifts the year 10 dividend from $465.40 to $618.78, about 33% higher. The effect grows with time, a higher yield and a share price that does not rise too fast. When the price rises quickly, each reinvested dollar buys fewer shares.
Limits of a dividend projection
Dividends are decided by a company's board and can be cut, suspended or raised. A high yield sometimes signals that the market expects a cut. Constant growth rates are a simplification, and real share prices rise and fall. Dividend taxes, trading costs and interest on cash dividends are not modeled, so treat the output as a scenario and not a forecast.
Assumptions and limits
- Dividends are paid at equal intervals during the year, and the dividend per share changes once a year at the start of the year.
- The share price grows at a constant yearly rate, compounded smoothly through the year.
- Reinvestment buys fractional shares at the share price on the payment date, with no fees. Cash dividends earn no interest.
- Taxes on dividends, brokerage fees, special dividends and stock splits are not modeled.
- The yield, growth rates and share price are example values, not current market data.
- Dividends are not guaranteed. This is a projection, not advice.
Frequently asked questions
How is dividend income calculated?
Multiply the number of shares by the annual dividend per share. If you only know the yield, multiply the amount invested by the yield. For example, $10,000 at a 3% yield is about $300 a year before any growth or taxes.
What is DRIP?
A dividend reinvestment plan uses each dividend to buy more shares of the same stock instead of paying cash. The calculator models this by buying fractional shares at the price on each payment date and adding them to your count.
Why is the dividend in the last year larger than a simple yield would suggest?
Two things raise it: the dividend per share grows each year, and with DRIP you own more shares. In the default example the year 10 dividend is more than double the year 1 dividend.
Does a higher yield mean a better investment?
Not necessarily. A high yield can come from a falling share price or an unsustainable payout. Total return, which includes price changes, matters as well as income, and the risk of a cut should be weighed.
Are dividend taxes included?
No. Qualified and ordinary dividends can be taxed differently depending on your situation, and this tool does not apply any tax. Reduce the dividend amount by your expected tax to approximate an after-tax figure.