💰 Dividend Calculator

Key concepts

DRIP is dividend compounding's best friend. Without reinvestment a 3% dividend yield gives you exactly 3% income per year — flat forever (absent growth). Turn DRIP on and that same 3% yield becomes a 3% compounding rate: after 24 years your share count has doubled at zero new capital, and at year 30 a starting $10,000 position holds about 2.43× the shares (assuming flat share price). Layer in 5% annual dividend growth on top of DRIP and the same $10,000 position throws off roughly $2,300 of income in year 30 — 7.7× the year-1 income on an unchanged starting capital base. The catch is opportunity cost: cash dividends spent today have higher present value than reinvested ones; DRIP only makes sense if you genuinely don't need the income for 10+ years.

Dividend Growth Investing (DGI) beats yield-chasing for long horizons. A 2%-yield stock growing dividends 8% a year produces more income than a 5%-yield stock growing 0% within 14 years and crushes it by year 25. The reason is exponentials: dividend growth compounds on a base that also compounds (via DRIP), so a small growth advantage stacks fast. The DGI rule of thumb is yield + 5-year dividend growth ≥ 8%: 3% yield + 6% growth qualifies; so does 5% yield + 3% growth. Dividend aristocrats (25+ consecutive years of raises) and kings (50+) are the canonical DGI universe; the iShares Select Dividend ETF (DVY) and Vanguard Dividend Appreciation ETF (VIG) are passive proxies.

Tax wrapper hierarchy: Roth / ISA / TFSA > Traditional IRA > Taxable. Roth IRAs (US), ISAs (UK), and TFSAs (SA) all charge zero in-account tax AND zero withdrawal tax, making them mathematically dominant for dividend strategies — every dollar of DPS turns into a dollar of compounding shares. Traditional IRAs / 401(k)s defer tax (0% in-account, but ordinary-income tax on withdrawal), which is still better than taxable in most cases because the larger compounding base outweighs the back-end tax for long horizons. Taxable brokerage accounts pay every payment — but US qualified dividends get the long-term-cap-gains rate (0/15/20%), so they're not the disaster ordinary-income REIT dividends are. Annual contribution caps for 2026: Roth IRA $7,000 (under 50), ISA £20,000, TFSA R36,000.

Dividend safety: coverage ratio and payout ratio. A dividend is only safe if the company actually earns enough to pay it. Dividend coverage ratio (EPS / DPS) above 2× is comfortable; below 1× means the dividend is funded by debt or asset sales — a cut is usually 6-18 months away. Equivalent measure: payout ratio (DPS / EPS) below 60% is the conservative target for industrials, consumer staples, and tech; 60-80% is the danger zone; 80%+ is sustainable only in regulated utilities and REITs (REITs are required to pay out 90% of taxable income). Always check the trailing 5-year payout ratio trend — a steadily rising payout is the slow-motion version of a dividend cut.

Dividend FIRE: $1m at 4% yield = $40k/yr. The classic Financial Independence dividend math is to live entirely on dividend income — usually targeting 3-4% yield-on-cost from a diversified DGI portfolio. To replace $40,000 of annual spending you need roughly $1,000,000 invested at 4% yield, or $1,300,000 at 3%. DGI advocates argue this is more robust than the 4% safe-withdrawal rule because you never sell shares (so market crashes don't force selling at a low), and a growing dividend keeps pace with inflation organically. Critics argue the math is identical at the portfolio level — a $40k dividend and a $40k withdrawal both reduce future compounding by the same amount. Either way, this calculator's DRIP-off output is the cleanest way to model the income side of a dividend-FIRE strategy.