Can a company cut its dividend, and what happens to a DRIP plan?

Yes, dividends aren't guaranteed. A cut immediately stops new share purchases through reinvestment.

DRIP Calculator (Dividend Reinvestment)

Enter your investment details to see how dividend reinvestment (DRIP) compounds your returns compared to taking dividends as cash.

DRIP Calculator

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Initial investment ($)

Starting dividend yield (%)

Annual price growth (%)

Annual dividend growth (%)

Time horizon (years)

Value WITH dividend reinvestment	$74,982.15
Value WITHOUT reinvestment (cash dividends)	$38,696.84
DRIP advantage	$36,285.31

"Without reinvestment" shows price appreciation only (cash dividends are assumed spent, not tracked separately). Excludes taxes - in a taxable account, dividend taxes reduce the amount available to reinvest each year. Not investment advice.

How it works

Each year: Dividend income = Shares x Dividend per share With DRIP: New shares purchased = Dividend income / Current price (shares accumulate) Without DRIP: Dividend paid as cash, share count stays fixed Price grows at your chosen annual rate; dividend per share grows at its own rate

Example

$10,000 initial investment, 4% starting yield, 7% annual price growth, 5% annual dividend growth, over 20 years: reinvesting dividends grows the position to about $74,982, versus roughly $38,697 from price appreciation alone - a DRIP advantage of over $36,000.

Step-by-step guide

Enter your initial investment and starting dividend yield - the yield is the annual dividend divided by the current share price.
Enter your assumed price growth and dividend growth rates - these can differ; a company that grows its dividend faster than its share price becomes an increasingly higher-yielding investment over time.
Compare the DRIP-on and DRIP-off results - the gap widens dramatically over longer time horizons, since reinvested dividends buy more shares, which then generate their own dividends.

Why dividend growth rate often matters more than starting yield

New DRIP investors often focus heavily on a stock's current dividend yield, but for long-term compounding, the dividend GROWTH rate frequently matters more. A stock that grows its dividend at 8% annually doubles its dividend payment roughly every 9 years - meaning the number of new shares purchased through reinvestment accelerates over time, not just the dividend amount itself. A lower-yielding stock with strong, consistent dividend growth can out-compound a higher-yielding stock with flat or declining dividends over a long enough time horizon, which is why dividend growth investors often prioritize consistency and growth trajectory over the highest current yield available.

Common mistakes

Ignoring taxes in a taxable brokerage account - unlike a Roth IRA or 401(k), dividends in a taxable account are taxed as received, meaning less of each dividend payment is actually available to reinvest than this simplified projection shows.

Assuming a high current yield alone predicts strong long-term returns - a very high yield can sometimes signal market skepticism about the dividend's sustainability, rather than simply being a bargain.

Frequently asked questions

Does DRIP work differently in a Roth IRA versus a taxable account?

Yes, significantly - in a Roth IRA, dividends are never taxed as they're received and reinvested, so the full dividend amount goes toward buying new shares every period, with no tax drag reducing the compounding effect at all.

What are "Dividend Aristocrats" and why are they popular for DRIP investing?

Dividend Aristocrats are companies that have increased their dividend payout for 25 or more consecutive years - a track record that appeals to DRIP investors seeking the kind of stable, growing cash flows needed to sustain long-term dividend growth.

Can a company cut or suspend its dividend, and what happens to a DRIP plan if it does?

Yes - dividends are never guaranteed, and a cut or suspension immediately stops new share purchases through reinvestment, which is why this projection represents one possible scenario based on the assumptions entered, not a guarantee.

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