Dividend Calculator
Estimate your dividend income and see how reinvesting dividends accelerates wealth building. Model dividend growth and compounding over time.
What Are Dividends?
Dividends are cash payments companies make to shareholders from their profits.
Cash Payments
Companies distribute a portion of their earnings directly to shareholders, typically every quarter. This provides a regular income stream from your investments.
Dividend Yield
The annual dividend divided by the stock price. A $100 stock paying $4/year has a 4% yield. Yield tells you the current income return on your investment.
Dividend Growth
The best companies raise their dividends every year. A 5% annual growth rate means your $4 dividend becomes $6.72 in 10 years without buying more shares.
DRIP Power
Dividend Reinvestment Plans (DRIPs) automatically buy more shares with your dividends. This creates a compounding effect that dramatically accelerates wealth building.
Understanding Dividend Investing
Dividend Yield vs. Dividend Growth
Investors often debate high yield vs. high growth. High-yield stocks pay more now but may grow slowly. High-growth stocks pay less today but their dividends increase faster over time. The best approach depends on whether you need income now or are building wealth for the future.
High Yield Strategy
- 4-8% current yield
- Slower dividend growth (0-3%)
- Best for current income needs
- REITs, utilities, telecoms
Dividend Growth Strategy
- 1-3% current yield
- Fast dividend growth (8-15%)
- Best for long-term wealth
- Tech, healthcare, industrials
DRIP: Dividend Reinvestment Plans
A DRIP automatically uses your dividend payments to purchase additional shares. Over time, those new shares also earn dividends, creating a powerful compounding cycle. Most brokerages offer free DRIP enrollment. The effect is dramatic: $10,000 invested at a 4% yield with 5% dividend growth turns into significantly more with DRIP than without, because each reinvested dividend buys more shares that earn more dividends.
Top Dividend ETFs
| ETF | Name | Typical Yield | Strategy |
|---|---|---|---|
| SCHD | Schwab US Dividend Equity | 3.5-4.0% | Quality + Growth |
| VYM | Vanguard High Dividend Yield | 2.8-3.2% | Broad High Yield |
| HDV | iShares Core High Dividend | 3.5-4.5% | Quality High Yield |
| JEPI | JPMorgan Equity Premium Income | 7.0-9.0% | Options Premium Income |
Dividend Aristocrats
Dividend Aristocrats are S&P 500 companies that have increased their dividends for at least 25 consecutive years. These companies demonstrate exceptional financial stability and shareholder commitment. Examples include Johnson & Johnson, Coca-Cola, Procter & Gamble, and 3M. The Dividend Aristocrats index has historically outperformed the broader S&P 500 with lower volatility.
Yield on Cost: Your Hidden Return
Yield on Cost (YoC) measures your dividend yield based on your original purchase price, not the current market price. If you bought a stock at $50 with a $2 dividend (4% yield), and the dividend grows to $5 over time, your Yield on Cost is 10% ($5 / $50). This is why dividend growth investors focus on the long game - their effective yield keeps climbing year after year.
Yield on Cost = Annual Dividend / Original Purchase Price
A stock bought at $50 paying $5/year = 10% Yield on Cost
Frequently Asked Questions
A good dividend yield typically ranges from 2% to 6%. The S&P 500 average yield is around 1.5%. Yields above 6-7% may signal risk, as the company might not sustain the payout. Focus on companies with moderate yields (3-4%) and strong dividend growth histories for the best long-term results.
Dividend Aristocrats are S&P 500 companies that have raised their dividends for at least 25 consecutive years. There are currently about 67 Aristocrats including Coca-Cola, Johnson & Johnson, and Procter & Gamble. Dividend Kings go even further, with 50+ years of consecutive increases. These companies are considered among the most reliable dividend payers.
If you are in the wealth-building phase (not yet retired), reinvesting dividends through a DRIP is generally the best approach. Reinvested dividends buy more shares, which generate more dividends, creating a compounding snowball effect. However, if you need current income (such as in retirement), taking dividends as cash makes sense.
In the US, qualified dividends are taxed at favorable long-term capital gains rates (0%, 15%, or 20% depending on income). Ordinary (non-qualified) dividends are taxed at your regular income tax rate. Holding dividend stocks in tax-advantaged accounts like IRAs or 401(k)s eliminates dividend taxes while the money remains invested.
