DRIP calculator: dividend reinvestment compared with taking the dividends in cash
A dividend reinvestment plan, or DRIP, uses each dividend to buy more shares instead of paying it out as cash. This calculator runs your assumptions twice, once with the dividends reinvested and once with them taken as cash, and compares the shares and the balance each way. It is a comparison of the numbers you enter, not a forecast. For the income and yield-on-money-put-in figures behind a single run, use the dividend calculator.
DRIP calculator
| After 20 years | Reinvested (DRIP) | Taken as cash | Difference |
|---|---|---|---|
| Shares | 379.157 | 200 | 179.157 |
| Ending balance (shares plus cash) | $41,539 | $31,831 | $9,708 |
| Dividend income in the last year | $1,406 | $758 | $648 |
| Cash dividends kept | $0 | $9,920 | -$9,920 |
Assumptions behind these results
- Every input is your assumption. The result applies them year by year and is not a forecast of any investment.
- The first-year dividend per share is the starting share price times the yield; it then grows by the dividend growth each year. The share price grows by the price growth each year.
- Dividends are paid in equal parts at the end of each payout period on the shares held then. A reinvested dividend buys fractional shares at that day’s assumed price.
- Additions buy shares at the assumed price at the start of each month or year, starting with the first.
- The dividend per share does not follow the share price: it changes only by the dividend growth you enter, so a falling or rising price changes the yield on the day but not the dividend.
- No fees, no commissions and no interest on cash dividends. Price growth is the only change in value besides dividends.
- If you turn the tax on with DRIP on, the tax is taken out of each dividend before it buys shares. A DRIP uses the dividend itself to buy shares, and Publication 550 says reinvested dividends must still be reported as income, so in this model the tax reduces what is reinvested.
- Tax is not applied unless you turn it on above.
| Year | Shares, DRIP | Shares, cash | Balance, DRIP | Balance, cash |
|---|---|---|---|---|
| 1 | 205.92 | 200 | $10,708 | $10,700 |
| 2 | 212.074 | 200 | $11,469 | $11,431 |
| 3 | 218.473 | 200 | $12,288 | $12,194 |
| 4 | 225.13 | 200 | $13,169 | $12,992 |
| 5 | 232.057 | 200 | $14,117 | $13,824 |
| 6 | 239.266 | 200 | $15,137 | $14,694 |
| 7 | 246.771 | 200 | $16,237 | $15,602 |
| 8 | 254.587 | 200 | $17,421 | $16,550 |
| 9 | 262.729 | 200 | $18,697 | $17,541 |
| 10 | 271.213 | 200 | $20,073 | $18,576 |
| 11 | 280.056 | 200 | $21,557 | $19,657 |
| 12 | 289.277 | 200 | $23,157 | $20,785 |
| 13 | 298.894 | 200 | $24,884 | $21,965 |
| 14 | 308.927 | 200 | $26,748 | $23,196 |
| 15 | 319.398 | 200 | $28,761 | $24,483 |
| 16 | 330.329 | 200 | $30,935 | $25,827 |
| 17 | 341.745 | 200 | $33,284 | $27,231 |
| 18 | 353.67 | 200 | $35,823 | $28,698 |
| 19 | 366.131 | 200 | $38,569 | $30,230 |
| 20 | 379.157 | 200 | $41,539 | $31,831 |
How a DRIP works
Investor.gov describes the plans this way:
“Dividend reinvestment plans. These plans allow you to buy more shares of a stock you already own by reinvesting dividend payments into the company. You must sign an agreement with the company to have this done. Check with the company or your brokerage firm to see if you will be charged for this service.”
IRS Publication 550 describes the same arrangement, and says what it does to the tax treatment of the dividends:
“The corporation in which you own stock may have a dividend reinvestment plan. This plan lets you choose to use your dividends to buy (through an agent) more shares of stock in the corporation instead of receiving the dividends in cash. Most mutual funds also permit shareholders to automatically reinvest distributions in more shares in the fund, instead of receiving cash. If you use your dividends to buy more stock at a price equal to its fair market value, you must still report the dividends as income.”
In the calculator, each reinvested dividend buys a fractional share at the assumed price on the payout date. Whether a particular plan or broker issues fractional shares is set by the company or the brokerage.
Fractional shares and cost basis
Cost basis is what you later subtract from the sale price to figure a gain or loss, so each reinvestment creates a purchase to track. Publication 550 says, for mutual fund shares:
“The original cost basis of mutual fund shares you acquire by reinvesting your distributions is the amount of the distributions used to purchase each full or fractional share. This rule applies even if the distribution is an exempt-interest dividend that you do not report as income.”
For a DRIP that sells stock at a discount, Publication 550 gives a different rule, and the discount is also income:
“Dividend Reinvestment Plans (DRIPs). If you participate in a DRIP and receive stock from the corporation at a discount, your basis is the full fair market value of the stock on the dividend payment date. You must include the amount of the discount in your income.”
It also describes a plan that lets you buy at a price below fair market value, and what you report:
“If you are a member of a dividend reinvestment plan that lets you buy more stock at a price less than its fair market value, you must report as dividend income the fair market value of the additional stock on the dividend payment date.”
Where many small reinvestments pile up, Publication 550 allows a choice for mutual fund shares:
“You can choose to use the average basis of mutual fund shares if you acquired the identical shares at various times and prices, or you acquired the shares after 2011 in connection with a dividend reinvestment plan (DRIP), and left them on deposit in an account kept by a custodian or agent.”
The calculator does not track basis or figure a gain. For the tax on a sale, see the capital gains tax calculator.
Reading the comparison
- Shares. With a positive yield the reinvested run always ends with more shares, because every dividend buys some. The share difference is the most direct measure of what reinvesting adds.
- Balance. The cash run holds its dividends at no interest, so the balance gap depends on the price path you assume. With a falling price assumption, shares bought later lose value too.
- Income. The last-year dividend income compares what each run would pay that year; it is higher with DRIP when more shares are held, if the dividend per share is the same in both runs.
- Frequency. A more frequent payout reinvests sooner, so with a positive yield and price growth the ending share count can differ slightly between a yearly and a monthly schedule.
If you want a yield from a price and a dividend, or the price that gives a target yield, the dividend yield calculator does that.
Frequently asked questions
What is a dividend reinvestment plan?
Investor.gov says dividend reinvestment plans allow you to buy more shares of a stock you already own by reinvesting dividend payments into the company, that you must sign an agreement with the company to have this done, and says to check with the company or your brokerage firm to see if you will be charged for the service.
Are reinvested dividends taxable?
IRS Publication 550 says that if you use your dividends to buy more stock at a price equal to its fair market value, you must still report the dividends as income. It also says that in a plan that lets you buy stock at a price less than fair market value, you must report as dividend income the fair market value of the additional stock on the dividend payment date.
How does reinvesting dividends affect cost basis?
IRS Publication 550 says the original cost basis of mutual fund shares you acquire by reinvesting your distributions is the amount of the distributions used to purchase each full or fractional share. For a DRIP that gives stock at a discount, it says your basis is the full fair market value of the stock on the dividend payment date and that you must include the discount in income. It also says you can choose average basis for mutual fund shares in some DRIP cases. FedRateCalc does not track basis.
Does the calculator handle fractional shares?
Yes. FedRateCalc buys fractional shares with each reinvested dividend. Whether a given plan or broker offers fractional shares is set by the company or brokerage, and IRS Publication 550 refers to the basis of "each full or fractional share" bought with reinvested distributions.
Does reinvesting always leave me with more money than taking cash?
Not necessarily. In FedRateCalc, DRIP always ends with more shares than cash payouts when the yield is greater than zero, because each dividend buys additional shares. The balance comparison depends on the share price path you assume, because the cash is held at no interest. It is a comparison of your assumptions, not a forecast.
What costs does the DRIP calculator leave out?
It leaves out any plan fee or brokerage charge. Investor.gov says to check with the company or your brokerage firm to see if you will be charged for the service. It also leaves out taxes unless you turn on the optional qualified dividend tax, and it does not model the sale of shares.
Related pages
Sources
- Investor.gov: Stocks, “How to buy and sell stocks” (Internet Archive capture of October 9, 2026)
- IRS: Publication 550 (2025), Investment Income and Expenses
Reviewed November 6, 2026. FedRateCalc is not affiliated with the IRS or the SEC; their sites are the official source, and this page is general information, not tax or investment advice.