Dividend Reinvestment Calculator

What is Dividend Reinvestment (DRIP)?

DRIP stands for Dividend Reinvestment Plan. It's a strategy where, instead of taking your dividend payments as cash, you use them to automatically buy more shares of the underlying stock.

I like to think of it as "stacking bricks." Every dividend buys a new brick. That new brick earns its own dividends, which buy even more bricks. Over time, you're not just building a wall; you're building a fortress.

The "Snowball Effect" Explained

You've probably heard this term, but let me show you what it really means using the numbers from my calculator.

Imagine you have a snowball at the top of a hill. If you just push it (initial investment), it rolls. But if you add more snow to it as it rolls (reinvesting dividends), it gets bigger. As it gets bigger, it picks up even more snow with every rotation.

In the first few years, the difference is small. You might only earn an extra $50 or $100. But look at year 20 or 30 on the chart above. The gap between the blue line (DRIP) and the gray line (No DRIP) becomes massive. That gap is your wealth velocity increasing.

When Should You NOT Reinvest?

I'm a huge fan of DRIP, but there are times when taking the cash makes sense:

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  You Need the Income: If you're retired and living off dividends, you obviously need the cash to pay bills.
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  Overvaluation: If the stock is insanely overvalued, you might not want to buy more shares at that price. You might take the cash and invest it in a cheaper stock.
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  Rebalancing: If one position has grown too large, you might stop reinvesting in it to prevent it from dominating your portfolio.