This calculation adds distributed dividends in a linear scale. It is considered that those dividends have not generated additional returns since its distribution. It corresponds to a scenario in which an investor receives cash dividends and hoard that cash with no reinvestment in more shares or other alternatives.

If it is set a dividend tax rate different than 0%, this cost will be substracted for each dividend. Introducing a dividend tax rate of 15% means that just 85% of the pretax dividend will be added.

When comparing this method to the "reinvested dividends" method, neither of both is always favorable for the investor. It may appear that reinvesting dividends is always better-off, but it is not the case when the stock price sharply goes down after the reinvestment.