Dividend Reinvestment (DRIP) Calculator
Model how dividend reinvestment compounds your share count and portfolio value over time.
What Is DRIP?
A Dividend Reinvestment Plan (DRIP) automatically uses your dividend payments to purchase additional shares of the same stock — often without brokerage commissions and sometimes at a small discount to market price. Over long periods, this compounding of share count can dramatically increase total returns.
Fractional Shares in DRIP Programs
Most modern DRIP programs allow fractional share purchases, meaning every dollar of dividend income is put to work immediately. If your dividend buys $37.50 worth of shares priced at $50, you accumulate 0.75 of a share. Over years, these fractions add up significantly.
Tax Implications of DRIP
A common misconception: reinvesting dividends does not avoid taxes. The IRS considers dividends taxable income in the year received, regardless of whether they are reinvested. You also receive a higher cost basis for the newly purchased shares, which reduces capital gains when you eventually sell.
When NOT to Use DRIP
DRIP may not be the right choice if you need the dividend income to cover living expenses, or if you are in a high tax bracket with a taxable account and prefer to control when you reinvest. Near retirement, switching from DRIP to taking dividends as cash provides a natural income stream without forced selling.