See how a dividend portfolio grows into a passive income stream. Enter your investment, dividend yield, and time horizon — then watch what happens when you reinvest those dividends (DRIP) and let them compound. Get your annual income, monthly cash flow, and projected portfolio value.
Yield, growth & reinvestment
Dividends are the cash that profitable companies hand back to their shareholders, usually every quarter. On their own they look modest — a 4% yield on $50,000 is $2,000 a year — but the strategy comes alive when you reinvest them. Every dividend buys more shares, those new shares pay their own dividends, and the cycle feeds itself. This is a dividend reinvestment plan, or DRIP, and over a couple of decades it can turn a steady trickle into a serious river of income. Flip the DRIP toggle above off and on and watch the difference in the final-year figures; it's often dramatic.
Two engines drive the growth. The first is reinvestment, which compounds your share count. The second is dividend growth: healthy companies tend to raise their payouts year after year, so even the shares you already own start paying you more over time. A stock yielding 4% today that grows its dividend 5% annually is quietly handing you raises you never had to ask for. Stack price appreciation on top and you get total return — income plus a rising portfolio value — which is why dividend growth investing is a favorite of people building toward retirement or financial independence.
A word on realism. This model assumes steady, smooth rates, but real dividends can be cut in a recession and stock prices swing wildly from year to year. Chasing the highest yield is a classic beginner mistake — an unusually high yield often signals a troubled company about to slash its payout. The sturdier approach favors companies with moderate yields and long histories of dependable increases. Treat the projection here as a planning illustration of how the math could compound, not a guarantee of what any particular stock will do.
Reinvested dividends buy more shares that pay more dividends. Over decades this snowball dwarfs simple income.
Quality companies raise dividends yearly, so your income rises even without adding a single new dollar.
A sky-high yield often warns of a coming dividend cut. Steady growers usually beat the flashiest payers.
Dividend yield expresses income as a percentage of the current share price, which means it moves inversely with price: a yield that suddenly looks generous often reflects a falling share price rather than a rising dividend, the classic "yield trap". Two other ratios matter more than the yield itself. Yield on cost measures income against what you originally paid and rises over time if the dividend grows. The payout ratio — dividends divided by earnings — indicates sustainability, with anything persistently above 80% suggesting the dividend is being paid out of reserves or borrowing rather than profits.
Yield = (Annual dividend per share ÷ Share price) × 100Annual income = Shares × Annual dividend per shareYield on cost = (Annual dividend ÷ Original purchase price) × 100Payout ratio = Dividends per share ÷ Earnings per sharewhere:
Assumptions: Ignores tax. Qualified US dividends are taxed at long-term capital gains rates; ordinary dividends and most REIT distributions are taxed as ordinary income. Dividends are never guaranteed and can be cut without notice.
Compute the income, then see what happens to yield on cost after a decade of dividend growth.
Result$1,130.40 a year — a 6.73% yield on original cost
Yield on cost is why long-held dividend growers become such productive holdings: the income compounds against a fixed cost basis. It is also why current yield alone is a poor way to compare a mature high-yield stock with a lower-yielding one growing its dividend quickly.