It’s sometimes difficult explaining to people just how important a role dividend growth and dividend reinvestment can play in successful investing. So I went looking for tools that might help potential dividend growth investors see this for themselves, and came up with two online dividend growth calculators and a dollar-cost averaging (DCA) spreadsheet aimed at DRIP (Dividend ReInvestment Plan) investors.
The DCA spreadsheet is a downloadable Excel file available at The DRIP Investing Resource Center. It allows the user to input several factors – including initial investment, ongoing investment (by amount and period), initial stock price and dividend yield, expected annual stock price appreciation, and expected annual dividend growth rate – to produce the results of a dividend reinvestment strategy over a 20-year period.
The two online dividend growth calculators are each a little different. The first, found at Compounding Dividends, takes inputs of initial principal, expected rate of return, current dividend yield, annual dividend growth and investment period.
It doesn’t calculate reinvested dividends or ongoing investment, but can be used to calculate future compounded principal appreciation and future annual dividend income for up to a period of 99 years. With this calculator it’s easy to see the effect of dividend growth on the “yield on cost” – the yield calculated using the future dividend amount as a return on the initial principal (original cost basis).
The second online dividend growth calculator, found at Buy on the Upside, is also a dividend reinvestment calculator. It takes the following inputs: Initial number of shares, initial price per share, dividend yield, dividend growth rate, stock price growth rate, and number of years.
The nice thing about this calculator is that it calculates the total resulting value, number of shares, dividends paid and annualized return for both the cases of with and without dividend reinvestment. All of the above dividend calculators are useful in their own way, and I’ve added them to the “Resources Links” section of this blog.