Dividend Reinvestment (DRIP) Calculator
See how automatically reinvesting dividends dramatically accelerates portfolio growth — the most powerful and underappreciated compounding effect in investing.
Dividend Reinvestment Guide
How DRIP Works
A Dividend Reinvestment Plan (DRIP) automatically uses dividend payments to buy additional shares rather than paying them out as cash. These additional shares then generate their own dividends, which buy even more shares — a compounding effect that accelerates portfolio growth significantly over time. The mathematical principle: at 3.5% yield and 5% growth, total annual return = 8.5% with DRIP versus 5% without. Over 20 years: 8.5% compounds to 5.02× initial investment; 5% compounds to only 2.65×.
The Long-Term Power
Research by Ned Davis Research found that 69% of US equity market total returns from 1920–2012 came from dividend reinvestment rather than price appreciation alone. UK examples: £10,000 in a FTSE 100 index tracker in 2003: at 2023, price return alone ≈ £21,000 (5.7% CAGR). With dividends reinvested ≈ £38,000 (7.1% CAGR effective). The difference — £17,000 — came entirely from reinvested dividends.
DRIP in UK Accounts
Within a Stocks and Shares ISA (£20,000 annual allowance, all gains and income tax-free): most ISA providers offer automatic dividend reinvestment with no additional charges. Outside an ISA: dividends are taxable above the £500 dividend allowance (2026/27) at 10.75% (basic rate), 35.75% (higher rate). The tax-free ISA wrapper makes DRIP even more powerful. SIPP pensions also allow DRIP — contributions attract 20–45% tax relief upfront, compounding the starting base significantly.
Choosing Dividend Stocks vs Index Funds
Individual dividend stocks: DRIP on high-yield shares (6–8%) can be highly effective but concentration risk is significant. A single company cutting its dividend eliminates a large portion of the compounding engine. Dividend index funds (UK Dividend Plus, FTSE All-World ex-US): diversified exposure to dividend-paying shares with automatic reinvestment available. S&P 500 or FTSE All-World accumulation funds: automatically reinvest dividends within the fund without requiring any action from the in
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