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Project your future passive income. See the exponential power of reinvested dividends combined with annual dividend growth (Yield on Cost).
Step-by-step breakdown of compounding dividends.
Iterate balance with annual buys and reinvested dividends.
Calculate yield growth: I_t = B_t \cdot \left(y \cdot (1 + g)^t\right).
By the end of year 20, your Yield on Cost will have effectively exploded due to annual dividend increases. This calculation assumes all dividends are reinvested to buy more shares.
The Dividend Growth Compounder projects your future passive income from dividend-paying investments. It models the powerful combination of regular contributions, dividend reinvestment (DRIP), and annual dividend growth to show how your income stream can compound exponentially over time.
This calculator demonstrates the "Yield on Cost" effect—where long-term holders of dividend growth stocks eventually earn yields far exceeding the current market yield, because their original cost basis stays fixed while dividends grow.
Scenario: Emma starts with $10,000 in a dividend ETF, adds $500/month, with 3% yield and 7% annual dividend growth over 20 years.
Key insight: Emma contributed $130,000 total ($10K + $500×12×20), but dividend reinvestment and growth multiplied it nearly 3×.
Assumptions: This model assumes consistent dividend growth and reinvestment. Actual results vary with market conditions, individual stock performance, and changes in dividend policies.
DRIP automatically reinvests your dividend payments to purchase additional shares of the same stock or fund. This compounds your returns by increasing your share count, which generates more dividends, which buys more shares—creating a snowball effect over time.
Yield on Cost (YOC) measures your current dividend income relative to your original purchase price, not current price. If you bought a stock at $50 with a 3% yield ($1.50 dividend) and the dividend grows to $3.00, your YOC is 6% even if the stock price doubled. It shows how dividend growth rewards long-term holders.
Neither is universally 'better'—it depends on your goals. Dividend investing provides regular income and tends to be less volatile. Growth investing aims for capital appreciation. Many investors use both: growth during accumulation years, then shift toward dividends approaching retirement for income.
Look for 'Dividend Aristocrats' (S&P 500 companies with 25+ years of consecutive dividend increases) or 'Dividend Kings' (50+ years). Key metrics include: payout ratio under 60%, consistent earnings growth, and debt-to-equity below industry average. ETFs like NOBL or VIG offer diversified exposure.
Qualified dividends (from US stocks held 60+ days) are taxed at long-term capital gains rates (0%, 15%, or 20% depending on income), which is lower than ordinary income rates. Non-qualified dividends (from REITs, MLPs, short-term holdings) are taxed as ordinary income. Holding in tax-advantaged accounts (IRA, 401k) defers or eliminates this tax.