Question 1

What is a DRIP (dividend reinvestment plan)?

Accepted Answer

A DRIP automatically uses the cash dividends a stock pays you to buy more shares of that same stock, instead of paying you cash. Those extra shares then pay their own dividends, which buy even more shares — compounding your income over time.

Question 2

How does dividend reinvestment compound?

Accepted Answer

Each reinvested dividend increases your share count, which increases next period's dividend, which buys more shares again. Over decades this snowball effect can dramatically outgrow taking dividends as cash — the calculator above shows the difference when you toggle reinvestment on and off.

Question 3

Is reinvesting dividends worth it?

Accepted Answer

For long-term investors still building wealth, usually yes — reinvestment is the single biggest driver of total return for dividend stocks. Investors who need the income to live on (e.g. in retirement) typically switch to taking dividends as cash.

Question 4

Are reinvested dividends taxed?

Accepted Answer

In a taxable account, yes — reinvested dividends are still taxable in the year they're paid, even though you didn't receive cash. In tax-advantaged accounts (IRA, 401k, ISA), reinvestment compounds tax-free or tax-deferred.

Dividend Reinvestment Calculator (DRIP)

Projected annual dividend income

Dividend Reinvestment — FAQ