Dividend Calculator

Dividends are the part of a company’s profit that it pays to shareholders in cash. Investors who hold shares for income watch three things: how much the dividend is today as a share of the price (the yield), how fast it grows, and what happens if the cash is put back into the shares instead of spent. This calculator puts those three together in a table you can read year by year.

The model

You start with an amount invested. In each year, the dividend per unit is the starting yield times (1 + dividend growth) raised to the number of years already passed. The dividends for the year are the units held times that amount, after tax. If reinvestment is switched on, that cash buys more units at the end-of-year price, which itself grows at the price growth rate. If it is off, the cash is collected separately. Yearly additions, if any, buy units at the start of the year.

A worked example

The defaults put 5,00,000 into an investment with a 3% yield, dividends growing 6% a year, prices growing 7% a year, 20 years and reinvestment. The first dividend is 15,000, and the portfolio is worth 5,50,000 after year one. After 20 years it is worth 32,12,881, the investor has received 7,49,679 in dividends after tax, and the dividend in year 20 is 73,635. Compared with the original 5,00,000 this is a yield on cost of 14.73%. If the dividends had been spent instead, the portfolio plus the cash collected would have been 24,86,626, so reinvesting was worth about 7.3 lakh more.

Taking the cash instead

Switch reinvestment off to model an income investor. The second sample puts 10,00,000 into a 4% yield with 5% dividend growth and 5% price growth for 10 years. The dividend in year 10 is 62,053 and the holding is worth 16,28,895, with 5,03,116 of dividends collected in cash. The yield on cost is 6.21%. The comparison line shows that reinvesting would have produced 23,67,364 against 21,32,010 for the value plus cash, which is the price of taking the income.

What yield on cost tells you

Yield on cost is the latest yearly dividend divided by everything you have put in. A modest 3% starter yield turns into more than 14% on cost in the default example because the dividend grew faster than your cost stayed still. It is a flattering number, because it ignores that your money could have been elsewhere, so use it to see how a growing payout supports a retirement budget, not to compare with a new investment’s current yield.

Edge cases

A tax rate applies to each year’s dividend; enter your actual rate on dividends. A negative dividend growth models a shrinking payout, and a growth rate above the price growth shows the yield rising over time. Yearly additions are added at the start of each year, so the first addition buys units at the opening price. Years must be a whole number up to 80.

Limits

Dividends can be cut or suspended, and a company’s price can fall as well as rise. The rates are your assumptions and the model treats them as constant. Brokerage costs, currency changes and local rules on dividend tax, such as withholding on foreign shares, are not included.

Related tools

• Stock Average Calculator works out the average price you paid across several purchases.
• Compound Interest Calculator is the fixed-rate cousin of reinvested dividends.
• CAGR Calculator measures how fast the portfolio value actually grew.
• ROI Calculator states the total gain as a percentage of what you paid.