How it works
The model works in yearly steps. The first dividend equals the starting capital times the dividend yield. Each year the dividend is paid on the current holdings, the price rises by the price growth rate, and the dividend plus twelve monthly contributions buy new units at the new price. The dividend per unit then grows by the dividend growth rate, so the yield on the current price drifts up when dividend growth is higher than price growth.
With the default inputs (20,000 starting capital, 3.5% yield, 5% dividend growth, 4% price growth, 200 per month, 20 years), the portfolio reaches about 199,585, the annual dividend about 8,459 and the average monthly income about 705, with 65,475 in dividends received along the way. “Annual dividend at the end” is the run rate for the following year. Amounts are shown without a currency symbol and apply to whatever currency you enter.
All rates are assumptions that stay constant. In reality, dividends can be cut and prices can fall, and in this model contributions made during a year only start to earn at year-end. Taxes, withholding taxes, fees and currency effects are not included. The figures illustrate the compounding mechanism; they are not an income forecast.