|Year||Balance||Annual Dividend||Dividend Tax||Growth||New Balance||Return|
The Dividend Calculator comes with pre-filled input parameters. Change the parameters to see the calculated results. After changing a parameter, the results are automatically calculated.
|Principal||The amount that will be invested initially.|
|Annual Contribution||The amount that will be additionally invested, per year. No matter what the Contribution Every value is, this amount should represent the total annual contribution amount.|
|Contribution Every||How often you will contribute to the investment. As an example, with an Annual Contribution of 1200 and Monthly Contribution Frequency, it is assumed that 100 worth of stocks will be bought each month.|
|Annual Dividend Yield||The average annual yield of your dividend portfolio|
|Dividend Tax Rate||The rate at which your dividends will be taxed|
|Dividends distributed every||The frequency that dividends are paid|
|Annual Stock Price Appreciation||The average yearly increase in price of your dividend portfolio|
|Calculation Years||The duration of the investment in years|
According to Investopedia, The word "DRIP" is an acronym for dividend reinvestment plan, but DRIP also happens to describe the way the plan works. With DRIPs, the cash dividends that an investor receives from a company are reinvested to purchase more stock, making the investment in the company grow little by little.
A dividend is a reward to shareholders, which can come in the form of a cash payment that is paid via a check or a direct deposit to investors. DRIPs allow investors the choice to reinvest the cash dividend and buy shares of the company's stock.
However, the shares are bought from the companies directly. Many companies offer shareholders the option to reinvest the cash amount of issued dividends into additional shares through a DRIP. Since these shares usually come from the company’s own reserve, they are not offered through the stock exchanges.
DRIPs use a technique called dollar-cost averaging intended to average out the price at which you buy stock as it moves up or down over a long period. You are never buying the stock right at its peak or at its low with dollar-cost averaging.
Company-operated DRIPS are popular with shareholders as a lower-cost option to accumulate additional shares. There are often no commissions or brokerage fees involved. Many companies offer shares at a discount through their DRIP ranging from 3 to 5 percent off the current share price.
The price discount combined with no trading commissions allow investors to lower their cost basis for owning a company's shares. As a result, DRIPs can help investors save money on buying additional shares of stock versus had they bought them on the open market.
It's important to note that the cash dividends that are reinvested into DRIPs are still considered taxable income by the Internal Revenue Service (IRS) and must be reported. Please consult a tax professional for the specific tax ramifications for your situation.
Also, when investors who purchased shares via a DRIP program want to sell their shares, they must sell them back to the company directly. In other words, the shares are not sold on the open market via a broker. Instead, a request to sell the shares must be made with the company, whereby the company will, in turn, redeem the shares at the prevailing stock price.