Compare dividend reinvestment (DRIP) vs. taking dividends as cash. See how reinvested dividends compound into extra shares and accelerate long-term wealth.
Initial share count
Starting price per share
Annual dividend yield (SCHD ~3.5%, VYM ~3%)
Expected stock price growth per year
1–50 years
Optional: extra shares bought each month (0 = none)
A Dividend Reinvestment Plan (DRIP) automatically uses dividends to purchase additional shares instead of distributing cash. This creates a compounding loop: more shares → more dividends → even more shares. Over decades, DRIP can account for a substantial portion of total return — historically around 40% of the S&P 500's total return has come from reinvested dividends.
The mathematical advantage of DRIP comes from putting every dividend dollar back to work immediately. If you take dividends as cash, those dollars sit idle (or get spent) rather than compounding. The difference compounds dramatically over 20–30 years — a 3% yield reinvested for 30 years can produce 30–50% more final value than the same portfolio without reinvestment.
In taxable accounts, reinvested dividends are still taxed as income in the year received, even if not taken as cash. This can create a cash flow issue. DRIP is most efficient in tax-advantaged accounts (IRA, 401k) where dividends compound tax-free.
S&P 500 index funds yield ~1.3–1.5%. Dividend ETFs like SCHD or VYM yield 3–4%. Individual high-yield stocks can be 5–8%, but higher yield often signals slower price appreciation.
Each reinvested dividend creates a new lot at the current share price. This means many small lots with different cost bases — most brokerages track this automatically. Use the Average Cost Calculator to see your blended cost basis.