Why DRIP matters
Dividend reinvestment turns a single stream of income into a compounding flywheel: every dividend buys more shares, which generate more dividends. Combined with dividend growth and capital appreciation, the long-run result often surprises people — most of an investor's terminal wealth comes from this compounding, not from the original principal.
How this model works
The calculator runs a monthly simulation. Each month: you add your contribution, dividends are paid (and reinvested) at 1/12th of the annual yield, the share price grows by 1/12th of the annual appreciation rate, and the dividend yield itself increases by 1/12th of the dividend growth rate.
Realistic assumptions
- Long-run S&P 500 nominal total return has averaged about 9-10% (split roughly 7% appreciation + 2% dividends).
- Strong dividend growers (S&P Dividend Aristocrats) have grown dividends at 6-8% annually over decades.
- This model ignores taxes — in a taxable account, qualified dividends are taxed at 0/15/20% federal in the US.