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A 4% yield becomes 30% yield on cost. That is the whole argument.
Dividend investing sounds boring until yield-on-cost math enters: a stock paying 4% with a growing dividend, reinvested, can be paying 30% of your original stake per year two decades later. This calculator projects dividend per share and price separately, buys shares with every payment, and shows the income trajectory, final portfolio value, and exactly what the DRIP checkbox is worth in dollars.
Dividend investors use it to hold through boring years: projecting income forward — yield on cost climbing toward 30% — turns an abstract compounding argument into the exact year the portfolio starts paying serious money. The DRIP-vs-cash comparison settles the reinvest question in dollars.
Example: $10,000 at $100/share paying $4/year (4% yield), with 6% dividend growth and 5% price growth. With DRIP, year-20 income is $3,050 — a 30.5% yield on the original cost — and the position is worth $63,077. Without reinvestment, income reaches only $1,283 and total value lands at $42,130. The DRIP checkbox is worth about $21,000 over 20 years in this scenario.
Your annual dividend income divided by what you originally paid — not the current price. It rises every time the company raises the dividend, which is why dividend-growth investors ignore the current yield on screen: a stock bought at 3% yielding 3% today can pay 10%+ on your cost after a decade of raises. It is the patient investor's scoreboard.
Yes — in a taxable account, dividends are taxed in the year received whether you take cash or reinvest them. Qualified dividends get the 0/15/20% long-term capital-gains rates; ordinary dividends (REITs, money markets) are taxed as income. In an IRA or 401(k) there is no annual tax, which is why high-yield holdings belong in tax-advantaged accounts when possible. Also watch yield traps: a 9% yield with a payout ratio over 100% is usually a dividend cut waiting to happen.