Dividend vs Growth Stock Calculator

How to use this calculator

• Amount and years: the same money goes into each stock for the same length of time.
• Dividend stock: today’s yield, how fast the dividend grows, and how fast the share price grows.
• Reinvest dividends: Yes buys more shares with each dividend. No keeps them as cash, which still counts in the total.
• Tax on dividends: the rate taken from each dividend in a taxable account. Use 0 inside an IRA or 401(k).
• Growth stock: pays no dividend, so only its price growth matters.
• Capital gains tax: applied to each side’s gain if you sell everything at the end.

The formula

Growth stock value = Amount × (1 + price growth)^years
Dividend stock value = Shares × Share price + Dividends kept as cash
After selling = Value − Capital gains tax × (Value − Cost basis)

The growth stock is simple compounding. The dividend stock is simulated month by month: the price rises a little every month, dividends arrive every quarter, the dividend per share is raised once a year, and tax comes out of each payment before it is reinvested. Its cost basis is the amount you invested plus every reinvested dividend, because you already paid tax on those dividends. The growth stock’s cost basis is just the amount you invested.

Worked example

The starting numbers put $10,000 into each stock for 20 years. The dividend stock yields 4%, raises its dividend 5% a year, and its price grows 3% a year. Dividends are reinvested after 15% tax. The growth stock’s price grows 7% a year.

1. Growth stock: $10,000 × 1.07²⁰ = $38,696.84.
2. Dividend stock: after reinvesting $17,816.07 of after-tax dividends, it is worth $40,286.02.
3. The growth stock leads at first. The dividend stock pulls ahead in year 15, because its dividend grows faster than its price, so its yield keeps rising.
4. In year 20 alone it pays $1,860.35 in dividends after tax.
5. Selling at 15%: the dividend stock’s cost basis is $27,816.07, so you keep $38,415.53. The growth stock’s basis is $10,000, so you keep $34,392.32.

With these rates the dividend stock comes out ahead. Raise the growth stock to 8% a year and the result flips. The rates you choose decide the winner, not the label on the stock.

Total return is what counts

A company can return money to you as a dividend or keep it to grow the business. In theory, money paid out as a dividend leaves the company, so the share price is lower than it would otherwise be. That is why comparing a 4% yield with 7% price growth is fair only when you look at both parts together: dividend yield plus price growth. This calculator always shows the whole value, so you can compare like with like.

Tax drag: when you pay matters

In a taxable account, dividends are taxed every year, even when you reinvest them. The tax money leaves your account and stops compounding. A stock that pays no dividend is taxed only when you sell, so the full gain keeps working until then. Set the dividend tax to 0 and you’ll see how much of the gap is tax. In an IRA or 401(k) the yearly tax doesn’t apply, and the comparison comes down to the growth rates alone. The Dividend Tax Calculator can tell you which rate applies to you.

Income vs flexibility

Dividends give you cash without selling anything, which some people prefer in retirement. With a growth stock you create your own income by selling shares, which gives you more control over timing and taxes. Both are reasonable plans. This calculator shows the money; how you prefer to receive it is up to you.

To see a dividend stock on its own with regular contributions, use the DRIP Calculator. To line up several dividend stocks against each other, try Compare Dividend Stocks.