DRIP vs. cash dividends: which builds more wealth?
$500/month at 4% yield reinvested grows to ~$228K in 20 years — about $34K more total wealth than pocketing the dividends, and $1,373/mo of income versus $722. See where each path wins.
How the math works
Both paths put in the same contributions and earn the same dividend yield. The only difference is what happens to each year's dividend. On the DRIP path it buys more shares, so next year's dividend is paid on a bigger base — that's the snowball. On the cash path you pocket the dividend, so the portfolio grows only from new contributions.
We compare total wealth fairly: DRIP wealth is the whole portfolio; cash wealth is the (smaller) portfolio plus every dividend you pocketed along the way. The gap is the pure cost of not reinvesting.
What this model leaves out on purpose: share-price appreciation. Capital gains lift the share value on both paths roughly equally, so excluding them isolates the one decision this tool is about — reinvest or pocket. It also keeps the cash portfolio exactly equal to your contributions, which you can check by hand. Real holdings appreciate, which makes the DRIP snowball larger still.
Where taking cash can be the right call: when you actually need the income now (retirement, a sabbatical), when reinvested dividends in a taxable account create a tax drag you can't defer, or when you'd rather redirect dividends into a different holding than the one that paid them. The wealth gap is the price of those choices, not a verdict against them.
Math runs locally. Inputs never leave your browser. Source on github.
Real-world scenarios
- $500/month invested: dividend timeline at 10, 20, 30 years — the reinvestment snowball over a full career, and when high-yield-flat beats low-yield-growing.
- Why reinvesting compounds: the mechanics — the same engine that powers DRIP, shown step by step.