How this number is made
Reinvesting dividends buys more shares. This page assumes the yield stays constant as the price grows, so the dividend per share rises with the price, and every dividend is used to buy shares at that year’s price. Taxes on the dividends are not taken out.
- Yield is today’s dividend divided by today’s price.
- Price growth is your assumption. Zero growth still compounds the shares if there is a dividend.
Formula
Each year the price grows, the dividend is yield × price × shares, and new shares = dividend ÷ the new price.
Worked example
With the figures already in the form, value if yield and growth hold is $10,945.
Questions
Where is the tax?
Not here. In a taxable account the dividend is taxed even though you reinvested it. A retirement account is the case this page matches more closely.
What if the yield is cut?
Then the path is wrong. The yield is held constant on purpose so you can see that one assumption.