Finance Calc App

UK Dividend & DRIP calculator

See how dividends compound when you reinvest them. Project your portfolio's value with a dividend reinvestment plan (DRIP) versus taking the income as cash, plus your growing dividend income over time.

By Mitch Duncan Last reviewed Methodology

Your investment

Annual dividends as a percentage of the portfolio's value. Broad index funds are often 1.5–3%; income/dividend funds 4–6%.

Capital appreciation on top of dividends. As the portfolio grows, the dividends it pays grow with it.

Value with dividends reinvested
£233,047.86
Value if dividends taken as cash
£109,556.16
Reinvesting dividends (DRIP) leaves you about £63,935.54 better off after 20 years than taking the same dividends as cash — the compounding effect of dividends buying more holdings that pay still more dividends.
Over 20 years
Total contributed
£50,000.00
Dividends reinvested (DRIP)
£91,523.93
Dividends taken as cash (no DRIP)
£59,556.16
Dividend income in year 20
£4,213.70
Total dividends reinvested
£91,523.93
Effective yield on cost (year 1)
4.00%

A projection using constant yield and growth rates — real dividends and prices vary year to year, and companies can cut payouts. Figures are pre-tax: dividend tax differs by country (see below). This is an estimate, not investment advice.

Want the full picture? Dividend Investing and DRIP Explained →

How dividends are taxed in the UK

Reinvesting dividends through a DRIP compounds your returns, but outside a tax shelter the dividends are taxable when paid — even if they're automatically reinvested. The UK gives every taxpayer a Dividend Allowance (£500 from 2024/25), and dividends above it are taxed at dividend-specific rates:

These sit on top of any income, so your dividend rate depends on your other earnings.

Use an ISA to make dividends tax-free

Hold your investments in a Stocks & Shares ISA (£20,000 annual allowance) and dividends — reinvested or not — are completely free of UK tax, with no Dividend Allowance to track and nothing to declare. A SIPP (pension) shelters dividends too, with tax relief on contributions. For most UK investors, filling the ISA first is the obvious move before holding dividend shares in a taxable account.

What this calculator shows

The projection is pre-tax. Inside an ISA or SIPP that's an accurate picture of DRIP compounding; in a general investment account, subtract your dividend-tax rate on anything above the £500 allowance each year.

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Frequently asked questions

What is a DRIP (dividend reinvestment plan)?
A DRIP automatically uses the dividends a holding pays to buy more of it, instead of paying you cash. Those extra shares then pay their own dividends, which buy still more — so your income and capital compound together. Many brokers and companies offer DRIP for free, often including fractional shares.
How much difference does reinvesting dividends make?
Over long periods, a lot. Reinvested dividends compound on top of price growth, and historically they've accounted for a large share of the stock market's total long-run return. The calculator above shows your portfolio's value with dividends reinvested versus taken as cash, so you can see the gap for your own numbers.
What is dividend yield?
Dividend yield is the annual dividend expressed as a percentage of the share price — a 4% yield means a 100 investment pays about 4 a year in dividends. Broad index funds often yield 1.5–3%, while dedicated income or dividend funds may yield 4–6%. A very high yield can be a red flag that the market expects a cut.
What is yield on cost?
Yield on cost measures dividends against what you originally paid, rather than today's price. If a company keeps raising its dividend, your yield on cost rises over the years even as the current yield stays steady — which is why long-term dividend-growth investors focus on it.
Are dividends taxed if I reinvest them?
In a regular taxable account, usually yes — reinvested dividends are still taxable in the year they're paid, even though you never received cash. The rules and rates vary by country. Holding dividend investments inside a tax-advantaged account (such as an ISA, IRA, TFSA, or superannuation) can reduce or remove that tax — see the region-specific notes below the calculator.
Are dividends guaranteed?
No. Companies set dividends at their discretion and can cut or suspend them, especially in downturns. A projection that assumes a steady yield is a planning tool, not a promise — diversifying across many dividend payers or using a fund reduces the impact of any single cut.

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