DRIP vs Cash-Out Calculator
Compare reinvesting dividends against taking them as cash — see the compounding gap a DRIP builds over time after taxes.
How it works
DRIP: value = value × (1 + appreciation) + dividend × (1 − tax) · Cash: shares × (1 + appreciation), dividends × (1 − tax) set aside · compared over N years
A dividend reinvestment plan (DRIP) uses each payout to buy more shares, so future dividends and price gains apply to a growing base — dividends compound. Taking the cash instead leaves your share count flat; the cash you pocket does not grow (or grows only at whatever separate rate you choose). Taxes hit both paths equally on the dividend, but the DRIP still pulls ahead because it keeps every after-tax dollar working inside the investment. The gap widens the longer you hold.
Worked example
On $50,000 at a 3% yield, 5% appreciation, 15% dividend tax over 25 years: reinvesting compounds to roughly $210,000, while cashing out leaves shares worth about $169,000 plus a pile of banked dividends — a five-figure advantage for the DRIP that comes purely from letting dividends compound.
Frequently asked questions
Is reinvesting always better?
For growing your total wealth during accumulation, reinvesting almost always wins because it compounds the dividends. Taking cash makes sense when you need the income to live on or want to redeploy it elsewhere.
Are reinvested dividends still taxed?
Yes. In a taxable account, dividends are taxed in the year they are paid whether or not you reinvest them, and reinvested amounts add to your cost basis. In a tax-advantaged account there is no annual tax.
Does this assume the cash earns nothing?
This model sets aside the after-tax cash without further growth, to isolate the pure compounding benefit of the DRIP. If you reinvest the cash elsewhere at a similar return, the gap narrows.
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Educational estimate, not financial advice. Investment returns are not guaranteed.