Dividend yield
A $50 stock paying $2 a year in dividends yields 4%. A $10,000 position in it pays $400 a year before tax.
How reinvesting (DRIP) compounds
With a dividend reinvestment plan, each dividend buys more shares, and those shares pay dividends of their own. If the company also raises its dividend each year, income grows on two fronts.
Example
$10,000 at a 4% yield with 5% annual dividend growth, 3% share price growth, 15% dividend tax and reinvestment grows to about $19,150 in 10 years. Annual after-tax income rises from $340 to about $789 — a 7.9% yield on the original cost.
Taxes on dividends
- Qualified dividends (most US stocks held more than 60 days around the ex-dividend date) are taxed at 0%, 15% or 20% depending on income.
- Ordinary dividends — including most REIT and money-market distributions — are taxed as regular income.
- Dividends inside IRAs and 401(k)s aren’t taxed each year.
Beware of very high yields
An unusually high yield can mean the share price has fallen because investors expect a dividend cut. Look at the payout ratio (dividends ÷ earnings) and the company’s history of raising dividends.
Related Passive Income & Equities Tools
Reinvesting dividend cash flows unlocks compounding returns without requiring capital liquidation. Track total equity performance and CAGR with our Stock Return Calculator, project exponential portfolio growth via the Compound Interest Calculator, model tax-free retirement distributions using the Roth IRA Calculator, and plan long-term asset growth with our Investment Calculator.
Frequently asked questions
How often are dividends paid?
Most US companies pay quarterly. Some funds pay monthly, and many international companies pay semi-annually. This calculator works with annual totals.
What is a good dividend yield?
For broad US stock indexes it's been roughly 1–2% in recent years. Established dividend payers often yield 2–5%. Much higher yields deserve extra scrutiny.
Should I reinvest dividends?
If you don't need the income yet, reinvesting maximizes long-term growth. In retirement, many investors switch to taking dividends as cash to cover spending.