Dividend Reinvestment Plan

What is a Dividend Reinvestment Plan?

A Dividend Reinvestment Plan (DRIP) allows investors to grow their holdings by using cash dividends to purchase more shares of the same company rather than receiving the dividends in cash.

Key Features

• Automatic Reinvestment: Instead of receiving dividends in cash, you can automatically reinvest them to acquire additional shares or even fractions of shares in the same stock.

• Cost-Effective: Many DRIPs allows you to buy shares without paying commissions or brokerage fees.

• Compounding Growth: Reinvested dividends increase the number of shares you own, and those additional shares generate more dividends over time, creating a compounding effect.

• Tax Considerations: Even if dividends are reinvested rather than received in cash, they are still considered taxable income. Be sure to account for this at tax time.

Types of DRIPs

• Direct Stock Plans: Provided directly by companies, allowing you to purchase shares directly from them.

• Brokerage Plans: Offered by brokers, enabling the reinvestment of dividends from multiple stocks in one account.

• Cashless DRIPs: Use dividends to buy shares without requiring extra funds, though some shares may be sold to cover costs.