How dividend income is calculated
Annual income = investment × dividend yield
Yield = annual dividend per share ÷ share price
Example
$25,000 invested at a 3.5% yield pays about $875 in the first year. If the dividend grows 6% a year, the share price grows 5% a year and you reinvest everything, after 20 years the portfolio could be worth about $136,000 and pay over $5,200 a year in dividends.
Building dividend income
- Reinvest while you are building wealth, then switch to taking the cash in retirement.
- Diversify across many companies or use dividend-focused index funds.
- Watch the payout ratio: companies paying out most of their earnings have less room to raise the dividend.
- Use tax-advantaged accounts to avoid paying tax on dividends every year.
For overall growth projections, try the investment calculator.
Last reviewed October 2026.
Frequently asked questions
How do I calculate dividend income?
Multiply the amount invested by the dividend yield. $25,000 in a stock yielding 3.5% pays about $875 a year. Or multiply the number of shares by the annual dividend per share.
What is dividend reinvestment (DRIP)?
A dividend reinvestment plan uses each dividend to buy more shares automatically. Those new shares pay dividends too, so income and value compound over time. Turn DRIP on and off to see the difference.
What is dividend growth?
Many companies raise their dividend each year. A stock that grows its dividend 6% a year doubles its payout in about 12 years, even if you never add money. The calculator lets you set this growth rate separately from the share price growth.
Are dividends taxed?
In a regular US brokerage account, qualified dividends are taxed at 0%, 15% or 20% depending on income, and other dividends at ordinary income rates. Dividends inside IRAs and 401(k)s are not taxed each year. Results here are before tax.
Is a higher dividend yield always better?
No. A very high yield can signal that the share price has fallen because investors expect a dividend cut. Look at the company's earnings, payout ratio and history of dividend growth too.