About the Dividend Calculator
A dividend portfolio compounds in two directions at once: dividends reinvested buy more shares, and (if the company raises payouts) those shares throw off increasing cash. The combination can cause a portfolio’s income to outgrow its cash price inputs — the classic self-reinforcing DRIP effect.
This tool projects: portfolio value and, most importantly, the income it would throw off in a given future year, assuming dividends are reinvested and per-share payouts keep growing at the rate you provide.
The formula behind it
The projection iterates one year at a time:
Income_t = value_t × yield × (1+growth)^t • value_{t+1} = value_t + income_t (reinvested)The tool models reinvestment conservatively (dividends buying shares at the same price level, so value growth comes only from reinvested cash), and applies the per-share payout growth to the whole portfolio’s next-year income. Never assume price appreciation beyond what you enter.
Worked example
Defaults — $25,000 at a 3.2% yield, dividends rising 6%/yr, 20 years:
- Year 1 income = 25,000 × 3.2% = $800.
- Income compounds as dividends rise and the growing share count reinvests each payout at the same price level.
Takeaway: After 20 years of that pattern, annual income reaches roughly $2,570 — about 3.2× the starting payout — and the portfolio sits near $54,000, with about $29,400 of that attributable to dividends reinvested along the way. Reinvestment is what turns a fixed yield into an income ladder.
What moves the result
- Starting yield — high yield is not automatically better; payout ratio and safety matter equally.
- Dividend growth rate — the growth rate compounds the whole model; 6–8% is a plausible band for dividend growers; single digits are common
- Reinvestment — DRIP contributes heavily to the compounding once the income is larger.
- Payout cuts — the model assumes they don’t happen; real stocks occasionally cut payouts, so treat the output as a base case.
Practical tips
- Focus on the yield × growth combination, not on chasing the highest yield: 3% yield growing 7% beats 5% yield growing flat in under a decade.
- Check payout ratios (≤ 60% is commonly safe) — a cut cancels several years of “growth” gains.
- Verify the dividend histories: 25 consecutive years of raises (being a Dividend Aristocrat) says much more than one big yield.
- Taxes: qualified dividends are taxed more favorably than interest, but reinvested dividends are taxed as income in a taxable account.
- For price appreciation-driven portraits, use the investment and stock calculators; this tool intentionally isolates the income story.
Frequently asked questions
What is DRIP?
A Dividend Reinvestment Plan: instead of cash, your dividends automatically buy additional (often fractional) shares. It eliminates cash flow leakage and compounds income automatically.
Why does this model not include price appreciation?
It can easiest be exponentiated expectations; this calculator stresses the income stream — that lets you see whether the income plan holds up even if nothing else changes, which is its chief question to answer.
Should I seek high yield or growth dividends?
Evaluating young portfolios mostly benefits from growth-and-mid yield (3–4%, 6-8% growers). High yields need deeper checks on payout ratios and debt situation.