How to use the dividend calculator
Use Dividend growth to see how an investment in a dividend stock or fund grows over time: enter the initial investment, a monthly or yearly contribution, the share price, the dividend yield, how fast the dividend and the price grow, the number of years, how often dividends are paid and your tax rate on them. Tick Reinvest dividends (DRIP) to buy more shares with every payment, or untick it to take the dividends as cash. The results show the total value, the shares you own, your yearly dividend income and a year-by-year schedule.
Use Dividend yield to find the yield of a stock from its price and annual dividend, and how much income your shares pay a year and with each payment.
Dividend yield formula
Dividend yield = annual dividend per share ÷ share price × 100%
A $50 share that pays $1.75 a year yields 3.5%. With 100 shares, the yearly income is $1.75 × 100 = $175.00, or $43.75 each quarter. For a quarterly payer, the annual dividend is the latest quarterly dividend × 4.
Dividend growth and reinvestment example
You invest $10,000 and add $500 a month in a stock priced at $50 with a 3.5% yield. The dividend rises 5% a year and the price 6% a year, dividends are paid quarterly and taxed at 15%. These are the default inputs of the Dividend growth tab. After 20 years:
| Reinvested (DRIP) | Taken as cash | |
|---|---|---|
| Total invested | $130,000.00 | $130,000.00 |
| Dividends after tax | $71,524.98 | $56,676.52 |
| Shares owned | 2274.93 | 1613.84 |
| Value of the shares | $364,801.14 | $258,790.67 |
| Cash from dividends | $0.00 | $56,676.52 |
| Yearly dividend income now | $8,551.11 | $6,066.18 |
Reinvesting leaves you $49,334 better off and with a bigger yearly income, because every reinvested dividend buys shares that pay dividends of their own. Taking the cash gives you money to spend along the way, which suits retirees who live on their dividends.
How dividend reinvestment (DRIP) works
A dividend reinvestment plan uses each dividend to buy more shares automatically, often in fractions of a share and with no fee. Most brokers offer it with one setting. The dividends are still taxable in the year you receive them, even when they are reinvested, unless the shares are in a tax-advantaged account.
How much do you need to invest to live on dividends?
Divide the yearly income you want by the dividend yield. For $1,000 a month, or $12,000 a year, at a 3.5% yield you need about $342,857 invested. If the dividends are taxed at 15%, you need about $403,361 to keep $1,000 a month after tax. A higher yield needs less money but usually comes with slower dividend growth or more risk.
Yield on cost
Yield on cost is the yearly dividend income divided by the money you invested. It rises as the dividends grow, even though the current yield stays about the same. In the example, the reinvested shares pay $8,551.11 a year on $130,000 invested, a yield on cost of 6.58%.
What is a good dividend yield?
Broad U.S. stock indexes yield about 1% to 2%, and many dividend stocks and funds 2% to 5%. A yield far above that can be a warning sign: it often means the price has fallen because the market expects the dividend to be cut. Look at the payout ratio, the share of profits paid as dividends, and at how long the company has raised its dividend. Steady dividend growth often matters more over the years than a high yield today.
Taxes on dividends
In the United States, qualified dividends are taxed at 0%, 15% or 20% depending on your income, and ordinary dividends at your income tax rate, even when they are reinvested. In an IRA or 401(k) they grow without yearly tax, and in a Roth account they can be tax-free: the Roth IRA calculator compares that with a taxable account. The calculator takes the tax out of each payment before it is reinvested; set it to 0 for a tax-free account.
Key dividend terms
- Ex-dividend date: you must own the shares before this date to get the next dividend.
- Payout ratio: dividends per share ÷ earnings per share. A very high ratio leaves little room for raises.
- Dividend growth rate: how fast the dividend per share rises each year.
- Total return: the dividends plus the change in the share price. The ROI calculator and the average return calculator measure it.
To plan regular investing without dividends, use the investment calculator or the compound interest calculator.