How could reinvesting dividends
grow your future income?

Dividends to spend now or reinvest for later

Spending dividends can help with living costs now. Reinvesting dividends you do not yet need can increase the holdings that earn future dividends. The purpose of that income can change between building assets and using them for living costs.

Assume an initial $100,000, a 4% annual dividend yield, no dividend growth and a 10-year period. This simple comparison holds prices constant, excludes taxes and fees, and reinvests dividends at each year-end.

If every annual dividend is spent

Invested assets after 10 years

$100,000

Dividend spent each year

$4,000

Dividends spent over 10 years

$40,000

If every dividend is reinvested at year-end

Invested assets after 10 years

$148,024

Cumulative reinvested dividends

$48,024

Dividend earned during year 10

$5,693

Spent dividends also have value: they funded consumption. The comparison separates money used now from invested assets retained for later. Reinvested dividends are already included in the final balance; adding that cumulative figure to the balance would count them twice.

Today’s dividend becomes part of tomorrow’s investment base

Even without new contributions, reinvested dividends become part of the next year’s investment base. Setting dividend growth to 0% separates this reinvestment effect from the model’s assumption of an increasing yield.

Each annual dividend is earned on assets before that year’s reinvestment. It is different from a next-year estimate calculated from the final reinvested balance.

Understand yield and growth before entering assumptions

Dividend yield relates annual dividends to invested assets. Actual dividend growth is often measured through changes in dividends per share. This calculator instead simplifies growth by increasing the initial yield at the entered growth rate each year. It does not forecast a company’s dividend increases or an ETF’s distributions per share.

A high growth assumption over a long period can produce a rapidly increasing modeled yield. Start with 0% growth to examine reinvestment, then compare other assumptions. Actual outcomes also reflect dividend changes, prices, taxes and costs; a distribution does not by itself add the same amount to total investment value.

SEC — dividend reinvestment · SEC — fund distributions and asset value

If you want future dividends to help fund living costs

You might reinvest while building assets and later use dividends for living costs. This calculator models full reinvestment and does not model withdrawals after reinvestment stops. Use the monthly dividend goal calculator to explore the assets and monthly investment plan needed for a chosen pre-tax monthly average.

Plan for a monthly dividend average → · Explore historical prices and dividends →

Reinvestment timing

A dividend is calculated from assets at the start of each year and fully reinvested at that year-end.

Dividend growth assumption

The entered dividend yield is increased by the growth rate each year. Actual share prices and dividends per share may move differently.

What the estimate excludes

This is a pre-tax estimate and does not guarantee dividends or asset growth. Longer periods are more sensitive to the assumptions.

Reinvesting dividends on $10,000 for 10 years

This example uses a 4% starting yield, 3% dividend growth, and full pre-tax reinvestment.

Initial investment

$10,000

Estimated value

$15,656

Year-10 annual dividend

$777

No separate share-price growth is included. Because the assumed yield itself rises with dividend growth, long-term results are especially sensitive to this input.

Frequently asked questions