Dividend Growth Calculator: Visualize Stock And ETF Returns
The above calculator assumes a portfolio consisting of a single stock. This portfolio approach allows investors to see how dividends accumulate as cash when they are not reinvested.
Dividend Calculator Overview
Our dividend calculator is a great way to see how your investments may grow over time. After selecting your inputs, you can visualize how different scenarios—like reinvesting dividends vs. not reinvesting—impact long-term growth. We count a stock as a "portfolio" to show that non-reinvested dividends go into your cash balance and are still included in your total portfolio value.
Dividend Investing Explained
Dividend investing means investing in companies that pay out regular dividends to their shareholders. Bear in mind that this article (and calculator) focus on ETFs and stocks. We’ll cover Treasuries in a separate calculator.
Most dividend-paying companies have been around for a while and have decent financial standing. Because of this, they typically have a stockpile of cash on hand. Many of these large, mature companies distribute a portion of this cash to shareholders regularly as dividends. This is in contrast to growth companies, which are usually cash-poor and tend to survive on borrowing money.
It is important to note that high-dividend-paying stocks typically don’t see the same long-term price appreciation as more growth-oriented stocks. You give up that price appreciation for stability. This is why dividend investing is most popular amongst older investors.
Dividend investing is popular for all investors during periods of high market volatility or bear markets, as investors seek stability and reliable income from established companies.
Why Do Companies Pay Dividends?
The main reason companies pay dividends is to reward their shareholders. Dividend stocks typically have lower turner than growth stocks, which can lead to more price stability. Paying dividends also reassures shareholders that a company is performing well and is in a strong financial standing.
Important Dividend Dates
There are a few key dates investors should be aware of when it comes to cash dividends payments. Option traders, in particular, should pay close attention to the ex-dividend date, as it determines who is eligible to receive the dividend. If you're short a call option that is in the money near the ex-dividend date, you will likely be assigned and forced to buy the stock.
- Declaration Date – Company announces the dividend, including amount and key dates.
- Ex-Dividend Date – Must own the stock before this date to receive the dividend; options traders risk early assignment if short in-the-money calls.
- Record Date – Company finalizes the list of eligible shareholders (tends to be one business day after the ex-date).
- Payment Date – Dividend is distributed to shareholders.
The Pros and Cons of Dividend Investing
In investing, everything is relative. Therefore, to understand the pros and cons of dividend investing, we must compare them to growth stocks.
Reinvesting Dividends
And now, here's a brief pop quiz: Who said this?
If you answered Albert Einstein, you’d be wrong. The truth is, nobody knows who said it. What matters, however, is that it’s been told for so long because it’s true!
Let’s look at an example comparing the outcomes of reinvesting dividends vs. not reinvesting a stock’s dividends and having them sit in cash (which is included in the values below). For the sake of simplicity, we’re going to say that the dividends are issued annually. Here are our trade details:
- $100 initial investment
- 5% dividend yield
- 3% annual price growth
- 25 years time horizon
Over the course of twenty-five years, we can see that reinvesting our dividends leads to 78% more growth than not reinvesting!
If we double the time frame to 50 years (an investors lifetime), reinvesting dividends add up to 393% more growth! Your grandkids will thank you.
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Explore more outcomes on your own with the dividend reinvestment calculator included in this article!
Dividend Yield Explained
Dividend yield is a ratio that shows how much a company pays out in dividends each year relative to its stock price. It is expressed as a percentage and helps investors compare the income they can expect from different dividend-paying stocks or ETFs
Dividend Yield Calculation
Here’s how it’s calculated:
For example, if a company pays $4.00 per share in dividends annually and the stock price is $100.00, then:
Dividend Yield = (4.00 / 100.00) × 100 = 4%
Where Do You Find Dividend Yield?
The most reliable place to find the dividend yield for a stock or ETF is via the stock’s Investor Relations Page or the ETF’s prospectus.
You can also locate dividend yield in these places (though less reliable):
- Brokerage Platforms – Many trading platforms display current dividend yield
- Bloomberg & Morningstar – Professional research platforms tend to be quite reliable.
- Yahoo Finance, Google Finance, MarketWatch – Less reliable, but easy and free.
Dividend Payout Ratio Explained
The dividend payout ratio (DPR) measures the percentage of a company’s earnings that are paid out as dividends to shareholders. This ratio helps investors understand how much profit a company is returning to investors versus how much it is reinvesting for growth.
Dividend Payout Ratio Calculation
Here’s how the dividend payout ratio is calculated:
Let’s continue from our previous example to see how it works:
- Dividends per Share (DPS): $4.00
- Earnings per Share (EPS): $10.00
Now, we just plug the numbers in:
(4.00 / 10.00) × 100 = 40%
This means the company pays out 40% of its earnings as dividends while retaining 60% for reinvestment.
This is a pretty balanced payout ratio. If this number gets too high, you may worry about sustainability—if earnings drop, dividends may be cut.
On the other hand, if the DPR is too low, the company may be prioritizing growth over shareholder returns.
Dividend Growth Rate Explained
The dividend growth rate (DGR) measures how much a company’s dividend payments increase over a specific period, usually 1 year, 3 years, 5 years, or 10 years. It’s an excellent metric for investors looking for steady income growth.
Dividend Growth Rate Calculation
Here’s the formula:
Let’s say a company paid a dividend of $3.00 per share five years ago and now pays $4.00 per share.
Dividend Growth Rate = [(4.00 / 3.00)^(1/5) - 1] × 100
= (1.333)^(0.2) - 1 × 100
≈ 5.92% per year
This is a pretty decent growth rate, but it’s essential to keep in mind (as I said before) that everything is relative in investing. Do the dividend growth rates of similar companies exceed this number? If so, why?
Takeaways
Let's now sum up what we learned:
Disclaimer: The information provided in this article and the Dividend Growth Calculator is for educational purposes only and should not be considered financial, investment, or trading advice. All investments involve risk, including the possible loss of principal. The calculator is a tool for illustrative purposes only and does not guarantee future performance; please consult a financial professional before making any investment decisions.
FAQ
Generally speaking, most investors pay taxes on dividends. However, the tax rate depends on whether the dividends are qualified or ordinary.
The stocks of specific, mature sectors tend to pay more dividends than faster-growing sectors like tech. For example, utility, consumer staple, and financial sector stocks are known for high and consistent dividend payouts.
The 5% dividend rule generally refers to a guideline where investors seek stocks that yield at least 5% annually. Income-oriented investors often use it.
The 25% rule implies that a company should not distribute more than 25% of its earnings as dividends.
Dividends can be an excellent investment for older and risk-averse investors. They are also beneficial in volatile markets, as they typically offer more stability and consistent income.
