Planning

What Is DRIP? Dividend Reinvestment Explained

By MarketCapLens · Updated September 24, 2026 · 4 min read · View as Markdown

Try these example inputs in the DRIP calculator.

These figures match this guide's worked example. They are illustrative. They stay on this device and never appear in the URL.

A dividend reinvestment plan, or DRIP, uses cash dividends to buy more of the same holding instead of paying them out. The account then earns the next dividend on a larger starting value. That is mechanical compounding of the dividend — not a promise that the share price will rise.

Key takeaways

Each year: dividend = that year’s starting value × that year’s yield.
Reinvest by adding the dividend back; then add any contribution at year-end.
Yield then grows by the dividend-growth rate you typed.
This projection has no separate price-appreciation rate and no tax drag.

How the projection works

Each year: dividend = starting value × that year’s yield; add it back only if you reinvest; then add the contribution.

Yield here is the current yield on that year’s starting value, not yield on cost. A 2% yield on $10,000 pays $200 that year, whether you bought years ago at a different price or not.

Without reinvestment, dividends leave as cash and the account grows only by contributions. With reinvestment, those dividends stay in and earn later yields.

A worked example

Start with $10,000. Yield is 2%, dividend growth 5%, and you add $1,200 at each year-end, for 5 years.

With reinvestment the account ends at about $17,439.53.
Without reinvestment the account ends at $16,000, and $1,383.28 was taken as cash dividends. Total wealth without reinvestment is $17,383.28. The reinvestment benefit in this example is $56.25, not the $1,439.53 gap in account value.

That $56.25 is extra yield earned on dividends that stayed in. The model is a fixed-price yield-growth path: it does not move the share price. Try the same inputs in the DRIP calculator.

What DRIP tells you

It isolates the effect of putting dividends back to work, given a starting value, a yield path, and optional contributions. Holding periods of different lengths can be compared on that same mechanical path.

What DRIP leaves out

Share prices move. This model does not. It also ignores taxes, fees, and skipped dividends. A company can cut the dividend; the typed yield path will not know. Yield on cost — what you earn on the price you originally paid — is a different statistic, and this calculator does not compute it.

If the path is one lump sum with no extra cash and no dividends to model, CAGR is the simpler annualized reading of a start and an end.

Using the calculator

A dividend snapshot on a company page is not a 5-year yield path. Type the starting value, yield, and growth in the DRIP calculator. The ranking will not invent them.

For general education only. Nothing here is investment advice.

Sources

Investor.gov: direct investment plans and dividend reinvestment (opens in a new tab)

Formulas and worked examples are MarketCapLens's. See who checks the numbers.

Frequently asked questions

What is a DRIP?: A dividend reinvestment plan uses cash dividends to buy more of the same holding instead of paying them out. The MarketCapLens DRIP calculator pays a dividend on that year’s starting value, optionally adds it back, then adds your contribution at year-end.
Does a DRIP projection include price growth or taxes?: Not this one. The holding grows from reinvested dividends and contributions only. There is no separate price-appreciation rate and no tax drag. Yield is the current yield on that year’s starting value, not yield on cost.
What is the worked example?: $10,000 at a 2% yield, 5% dividend growth, and $1,200 contributed each year for 5 years ends at about $17,439.53 with reinvestment. Without reinvestment the account is $16,000 and $1,383.28 is taken as cash, so total wealth is $17,383.28. The reinvestment benefit in that example is $56.25.

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How the projection works

Each year: dividend = starting value × that year’s yield; add it back only if you reinvest; then add the contribution.

Yield here is the current yield on that year’s starting value, not yield on cost. A 2% yield on $10,000 pays $200 that year, whether you bought years ago at a different price or not.

Without reinvestment, dividends leave as cash and the account grows only by contributions. With reinvestment, those dividends stay in and earn later yields.

A worked example

Start with $10,000. Yield is 2%, dividend growth 5%, and you add $1,200 at each year-end, for 5 years.

With reinvestment the account ends at about $17,439.53.

Without reinvestment the account ends at $16,000, and $1,383.28 was taken as cash dividends. Total wealth without reinvestment is $17,383.28. The reinvestment benefit in this example is $56.25, not the $1,439.53 gap in account value.

That $56.25 is extra yield earned on dividends that stayed in. The model is a fixed-price yield-growth path: it does not move the share price. Try the same inputs in the DRIP calculator.

What DRIP leaves out

If the path is one lump sum with no extra cash and no dividends to model, CAGR is the simpler annualized reading of a start and an end.

Frequently asked questions

What is a DRIP?

A dividend reinvestment plan uses cash dividends to buy more of the same holding instead of paying them out. The MarketCapLens DRIP calculator pays a dividend on that year’s starting value, optionally adds it back, then adds your contribution at year-end.

Does a DRIP projection include price growth or taxes?

Not this one. The holding grows from reinvested dividends and contributions only. There is no separate price-appreciation rate and no tax drag. Yield is the current yield on that year’s starting value, not yield on cost.

What is the worked example?

$10,000 at a 2% yield, 5% dividend growth, and $1,200 contributed each year for 5 years ends at about $17,439.53 with reinvestment. Without reinvestment the account is $16,000 and $1,383.28 is taken as cash, so total wealth is $17,383.28. The reinvestment benefit in that example is $56.25.