Dividend Reinvestment (DRIP) Calculator

What this calculator does

This calculator projects what a dividend-paying holding becomes when every payment is reinvested rather than spent. It combines dividend yield and price appreciation into a total return, applies it to your starting amount and any regular additions, and returns the final value, the total contributed, and the growth generated along the way.

What separates it from a plain compound interest calculation is the composition of that growth. Here it arrives in two forms — units rising in value, and dividends buying more units that pay their own dividends. The second mechanism is what turns a modest yield into a substantially larger holding across decades.

When to use it

Use it when deciding whether to switch reinvestment on, and to see the scale of that decision. The gap between reinvesting and taking cash looks trivial in year one and considerable by year twenty, and only a projection makes it visible while there is still time to act.

It is also useful when planning the move into retirement. Modelling the accumulation phase with reinvestment, then switching to income, shows what dividend stream the holding eventually supports. And it clarifies the yield versus growth trade-off — running a 6 percent yield with 1 percent growth against a 2 percent yield with 5 percent growth shows how differently two holdings with the same total return behave.

Understanding the inputs

Starting amount is the current market value of the holding. Annual return should be the total return — dividend yield plus expected price appreciation, less platform and fund charges — because a DRIP compounds all of it together. A 4 percent yield with 3 percent growth and 0.5 percent charges gives 6.5 percent.

Be realistic rather than optimistic. Pairing a 6 percent yield with 6 percent growth is internally inconsistent, since a company paying out most of its earnings has little left to reinvest. Monthly addition is new money contributed alongside reinvested dividends, and keeping the total within the £20,000 annual ISA allowance keeps everything tax-free. Years does more work than any other input.

How is this calculated?

Total annual return = Dividend Yield + Price Appreciation. FV = Initial × (1 + Total Return)^years (simplified). DRIP compounds dividend yield alongside price growth.

A worked example

Take a £15,000 holding yielding 4 percent with 3 percent annual price growth, a 7 percent total return, held for 20 years inside an ISA with dividends reinvested. The value reaches roughly £58,000.

Compare that with drawing the dividends as cash. The units alone grow at 3 percent to about £27,100, and you would have collected roughly £16,100 in dividends along the way, for about £43,200 in total — around £15,000 less. Add £150 a month on top of reinvestment and the holding reaches approximately £132,000 after 20 years, of which £51,000 is your own money — the original £15,000 plus £36,000 of additions. Held outside an ISA as a higher rate taxpayer, the annual dividend tax at 35.75 percent would erode a meaningful part of that.

Limitations and assumptions

The model applies one flat total return every year, which markets never deliver. It also assumes the dividend is never cut, when dividends are entirely discretionary — many FTSE 100 companies reduced or suspended payments in 2020. Past dividends and past returns say nothing reliable about future ones.

It does not separate yield from appreciation in the calculation, so it cannot show the growing unit count that makes a DRIP interesting, nor can it model dividend growth over time. Tax is excluded, and outside an ISA reinvested dividends are taxable in the year received. Platform fees, fund charges, dealing costs, and stamp duty are also ignored. This is not regulated financial advice.