Portfolio with dividends reinvested.
Final value (dividends reinvested)
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Final value if dividends taken as cash
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Why reinvesting dividends quietly does the heavy lifting
A dividend reinvestment plan, or DRP, automatically buys more shares with each distribution instead of paying it into your bank account. The appeal is not the dividend itself, it is what compounding does to a growing share count. Each parcel of reinvested shares earns its own dividend next year, which buys more shares again, and the curve steepens the longer you leave it alone. For long-horizon investors in blue-chip Australian shares and broad ETFs, this is one of the simplest ways to let a portfolio build without lifting a finger or paying brokerage on every reinvestment.
This calculator projects that snowball. It adds your chosen dividend yield to your expected price growth and compounds the combined rate over the years you set, then shows the same starting parcel growing on price alone so you can see exactly what the reinvested income added. It suits anyone holding dividend-paying shares for the long run and wondering whether ticking the DRP box is worth it.
The two growth paths it compares
The tool treats your total return as price growth plus dividend yield. When dividends are reinvested, your money compounds at the full combined rate. When they are taken as cash and spent, only the share price compounds while the income leaks away. The gap between the two lines after twenty years is the part most people underestimate.
A $50,000 holding over twenty years
Using the defaults, $50,000 grows at 5 percent price growth and a 4 percent dividend yield. Reinvesting compounds at 9 percent a year. Taking the dividends as cash leaves only the 5 percent price growth working for you.
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Reinvesting more than doubles the result. The $147,556 difference is the compounding effect of those 4 percent dividends being reinvested year after year rather than spent. Stretch the horizon to thirty years and the gap widens further still, because compounding rewards time more than any single input.
The tax and record-keeping catch
Reinvesting does not make the dividend invisible to the ATO. Under dividend imputation, the cash value of the distribution is assessable income in the year it is paid, and any franking credits attached are grossed up into your income and then credited against your tax bill. A fully franked dividend reinvested in a high-income year can still create a tax liability you must fund from elsewhere, because no cash actually landed in your account.
The record-keeping point trips up almost everyone. Each reinvestment is a separate share purchase at that day's price, so it starts its own cost base and its own twelve-month clock for the 50 percent capital gains tax discount. When you eventually sell, you need the date and price of every parcel. Keep your DRP statements or export them from your broker each year, because reconstructing a decade of small reinvestments at sale time is genuinely painful.
Should I turn off the DRP near retirement?
Many investors do. While you are accumulating, reinvesting compounds the holding. Once you want the portfolio to fund living costs, switching the DRP off turns those dividends back into cash income without selling any shares, which is tax-efficient because franking credits can offset the tax on that income. It is a common and sensible shift as you move from building wealth to drawing on it.
Why does this tool not match my fund's exact unit count?
Real DRPs reinvest at the actual market price on the payment date, sometimes with a small discount, and round to whole shares with the remainder carried forward. This calculator uses a smooth annual yield, so it shows the long-run trend rather than the cent-perfect parcel history. For projecting decades ahead, the trend is what matters.