Dividend Income & DRIP Calculator

How DRIP compounding actually works

A dividend is a cash payment a company makes to shareholders, usually quarterly, funded out of its profits. Left alone, that cash lands in your brokerage account as a deposit you can spend, hold, or manually reinvest. A DRIP short-circuits the manual step: the moment the dividend is paid, the brokerage or the company's own transfer agent uses it to buy more shares of that same stock, at that moment's price, automatically. You never see the cash sit idle, and you never have to place an order.

The reason this compounds is the same reason compound interest compounds: each reinvestment permanently raises your share count, and next period's dividend is paid on that new, larger share count — not the one you started with. Run the calculator's defaults — $10,000 at a $50 share price (200 shares), a 4% starting yield, 5% annual dividend growth, DRIP on, 15 years — and by year 15 the share count has grown well past the original 200, purely from dividends buying more of the same stock, with no new money added after the initial $10,000. That's the entire mechanism laid bare: no market timing, no stock picking skill required, just dividends buying shares that pay dividends that buy more shares. For a longer walkthrough of the mechanics and the historical evidence behind it, see How DRIP Compounding Actually Works.

Turn DRIP off in the form above and watch the "DRIP gap" tile update in real time — that number is the entire value of automatic reinvestment, isolated from everything else, for your exact inputs. It only grows with time, because every year DRIP stays on is another year of shares bought with dividends that themselves start earning dividends.

Dividend growth vs. yield: two different numbers, often confused

Yield is a snapshot: today's annual dividend per share divided by today's share price, expressed as a percentage. It tells you what you'd earn on today's investment at today's payout, assuming nothing ever changes. Dividend growth is a trajectory: how much that per-share payout itself increases, year over year, regardless of what the share price does. A stock can have a low yield today and still be an excellent long-run income holding if its dividend growth rate is high and sustained — your yield on original cost keeps climbing even though the quoted yield (based on the current price) may barely move, because the price tends to rise alongside a growing payout.

This calculator keeps the two inputs separate on purpose: yield (or the equivalent dollar dividend-per-share, linked to it) sets where you start, and the dividend growth % field sets how fast the per-share payout compounds from there, independent of whatever the share price is doing. Toggle dividend growth to 0% and watch the year-15 income tile go flat — that isolates exactly how much of the projected income growth was coming from the growth assumption versus from DRIP share accumulation alone.

The yield trap

An unusually high quoted yield is not automatically a gift — it is frequently a warning. Dividend yield is a fraction, and a fraction gets larger when its denominator (the share price) falls just as easily as when its numerator (the dividend) rises. A stock that traded at $100 paying a $4 dividend (4% yield) that gets cut in half by bad news to $50 a share, with the dividend not yet reduced, now quotes an 8% yield — not because the company got more generous, but because the market is pricing in trouble, often including an expected future dividend cut that hasn't happened yet. Chasing the highest yield on a screener, without checking whether the underlying business can actually sustain that payout, is one of the most common ways dividend investors lose money. Before trusting a high yield, check whether the payout ratio (dividends paid relative to earnings or free cash flow) looks sustainable, and whether the dividend growth rate has been positive and steady rather than flat or declining.

How dividends are taxed: US vs. Canada (conceptual, no computation)

This calculator projects gross dividend income and share growth only — it does not compute tax in v1. But the tax treatment differs enough between the two countries that it's worth understanding the shape of each system before you rely on a pre-tax projection for after-tax planning.

United States — qualified dividends. Dividends paid by most US corporations (and many foreign ones) on shares you've held for a minimum holding period around the ex-dividend date are treated as "qualified" dividends and taxed at the same preferential rates as long-term capital gains — 0%, 15%, or 20% depending on your taxable income, rather than at ordinary income tax rates that run as high as 37%. Dividends that don't meet the qualified-dividend holding-period rule (for example, from certain REITs or foreign stocks the treaty doesn't cover) are taxed as ordinary income instead. See the Capital Gains Tax Calculator's underlying brackets for the current 0/15/20% thresholds by filing status.

Canada — eligible dividends, gross-up, and the dividend tax credit. Canada uses a different mechanism aimed at the same underlying goal: avoiding double taxation of income the corporation already paid tax on. An "eligible" dividend from a Canadian corporation (generally one taxed at the higher general corporate rate) is grossed up by 38% for tax purposes — meaning a $1,000 dividend is reported as $1,380 of taxable income — and then a federal dividend tax credit equal to roughly 15% of that grossed-up amount is applied against the tax owing, with a further provincial credit on top. The gross-up-then-credit mechanism is meant to roughly approximate what you'd have paid if you'd earned that income directly and the corporation hadn't paid tax on it first; "non-eligible" dividends (generally from small businesses taxed at the lower rate) use a smaller gross-up and a smaller credit, reflecting the smaller amount of corporate tax already paid. The net effect for most individual investors is a lower effective tax rate on eligible Canadian dividends than on an equivalent amount of interest or employment income — the same broad shape as the US qualified-dividend preference, arrived at through gross-up-and-credit arithmetic instead of a separate flat-rate bracket.

Both systems exist to tax dividend income more lightly than ordinary income, and both apply only outside of tax-advantaged accounts — inside a Roth IRA, TFSA, RRSP, or FHSA, none of this matters because the income isn't taxed (or is tax-deferred) in the first place. See the FAQ below on TFSA and Roth treatment for the account-level rules, and this site's Capital Gains Tax and RRSP vs TFSA calculators if you want to model actual after-tax outcomes rather than gross projections.

Every default, and why it's set where it is

• Investment amount — $10,000. A round number that keeps the arithmetic easy to scale — every output on this page is linear in the investment amount, so a $25,000 starting point is just 2.5× every tile here.
• Share price — $50, yield — 4%. A middling large-cap dividend-payer yield, not a specific stock. Together they set $2.00/share as the starting dividend — edit either the yield or the dollar field and the other updates automatically.
• Dividend growth — 5% annually. A conservative-to-moderate long-run assumption for a diversified dividend-growth holding; see the "What dividend growth rate is realistic?" FAQ for the caveats on treating this as a promise rather than a planning number.
• Share price growth — 4% annually. Set below the dividend growth rate on purpose, reflecting that this calculator separates income growth from price growth rather than assuming they move in lockstep — in reality a stock's price and its dividend often grow at different paces over any given stretch of years.
• Years — 15. Long enough to see DRIP's compounding effect clearly separate from the DRIP-off line on the chart, short enough to still feel like a plan rather than a fantasy.
• DRIP — on. Reinvestment is the more common default election on most brokerage dividend programs, and it's the assumption that shows the calculator's core mechanic. Switch it off any time to see the cash-flow alternative and the resulting gap.

What this calculator doesn't model

No market volatility — both dividend growth and price growth are applied as smooth, constant annual rates, never the jagged real path any actual stock or fund follows. No dividend cuts, suspensions, or reinstatements, which do happen, including to companies with long dividend-growth streaks. No taxes, trading fees, or brokerage DRIP-plan mechanics (some DRIP programs offer a small discount on the reinvestment price; this calculator always reinvests at that year's modeled price, with no discount). And no currency conversion — the currency selector only relabels the numbers between $ and C$; it doesn't apply any FX rate or account-specific tax rule. Treat every output here as a clean, assumption-driven projection meant for comparing scenarios against each other, not a forecast of what any specific holding will actually pay.