How to Calculate Dividend Income — Step by Step 2026

The formula, in one paragraph

Dividend income is six steps. First, what you paid: shares times price. Second, year one: shares times the dividend, and the yield, the dividend divided by the price. Third, grow the dividend each year by the growth rate. Fourth, add up the years without reinvesting. Fifth, add them up with DRIP, where each dividend buys more shares. Sixth, the yield on cost and the total return, and the check: ending value equals the money in plus the dividends. The example: 100 shares at $50.00, $2.00 a share, 5% growth, 10 years, DRIP on.

Step 1: The money you put in

The money in is the shares times the price per share: 100 × $50.00 = $5,000.00 invested. That number is the cost basis: the yield on cost divides by it, and the total return subtracts it. At $100.00 a share the same 100 shares would cost $10,000.00 and the yield would halve to 2.00%, even though the dividend stayed at $2.00.

Step 2: Year-one income and yield

The year-one income is the shares times the dividend per share: 100 × $2.00 = $200.00. The yield is the dividend per share divided by the price per share: $2.00 ÷ $50.00 = 4.00%. The yield is the income as a rate: a $100.00 share paying $4.00 also yields 4.00%, while a $4.00 dividend on the same $50.00 share yields 8.00% and pays $400.00 in year one.

Step 3: Grow the dividend

Each year the dividend per share grows by the growth rate: year two pays $2.00 × 1.05 = $2.10, year three pays $2.205, and year ten pays $2.00 × (1.05)^9 = $3.10 a share. At 0% growth the dividend stays at $2.00 a share, and at 10% growth it reaches $4.72 a share by year ten.

Step 4: Add up ten years without DRIP

Without reinvesting, the shares stay at 100 and each year pays the growing dividend on those 100 shares: $200.00 in year one, $210.00 in year two, $220.50 in year three, up to $310.27 in year ten. The total is the annuity formula: 100 × $2.00 × ((1.05)^10 − 1) / 0.05 = $2,515.58. At 0% growth the same ten years pay a flat $200.00 a year, $2,000.00 in total — the baseline DRIP has to beat.

Step 5: Reinvest with DRIP

With DRIP, each dividend buys more shares at $50.00, so later dividends are paid on more shares. Year one pays $200.00 and buys 4 more shares, so year two starts with 104 shares and pays $218.40. By year ten the share count is 163.34 and the income is $477.17. The ten-year DRIP total is $3,166.84, which is $651.26 more than the $2,515.58 without DRIP. The ending value is 163.34 × $50.00 = $8,166.84, and the check is $5,000.00 + $3,166.84 = $8,166.84.

Step 6: Yield on cost and total return

Yield on cost is the annual income divided by what you originally paid: $477.17 ÷ $5,000.00 = 9.54% at year ten — more than double the 4.00% starting yield, because the dividend grew 5% a year and DRIP added 63.34 shares. The total return with DRIP is ($8,166.84 − $5,000.00) ÷ $5,000.00 = 63.34%. Without DRIP the total wealth is $5,000.00 of value plus $2,515.58 of cash, $7,515.58, a 50.31% return.

Working backwards: the four reverses

The formula also runs backwards. For $1,000 a year in year-one income, the shares needed are $1,000 ÷ $2.00 = 500 shares (499 pay $998.00). On 100 shares the dividend would have to be $10.00 a share ($9.99 pays $999.00). For the income to double at 5% growth, the years are ln(2) ÷ ln(1.05) = 14.21 years: after 14 years the dividend is $3.96 a share, after 15 years $4.16. For a 5% yield at a $2.00 dividend, the price is $2.00 ÷ 5% = $40.00 a share (at $40.01 the yield is 4.9988%).

When the dividend is zero, and when growth is zero

With the dividend at $0, the income is $0.00, the total is $0.00, and the ending value stays at $5,000.00: nothing to reinvest, so the share count stays at 100. With 0 shares, everything is $0.00. With 0% growth the no-DRIP total is a flat $2,000.00, but DRIP still pays $2,401.22 and ends at $7,401.22. With 500 shares the ten-year DRIP total is $15,834.21, and with 20 years it is $12,942.86.

What NOT to do

Do not divide the income by the current price and call it the yield on cost: it divides by what you paid, $5,000.00. Do not count the dividends twice: the ending value of $8,166.84 already includes the $3,166.84 of reinvested dividends. Do not assume the dividend grows forever at 5%: companies cut and freeze dividends. And do not treat the ending value as what the money will buy: it is nominal, at a constant $50.00 price, before inflation, taxes, and fees.

That box is the whole formula.