Business, Legal & Accounting Glossary
DRIP. An investment plan offered by some corporations enabling shareholders to automatically reinvest cash dividends and capital gains distributions, thereby accumulating more stock without paying brokerage commissions. Many DRIPs also allow the investment of additional cash from the shareholder, known as an optional cash purchase. Unlike with a Direct Stock Purchase Plan, with a DRIP the investor must purchase the first share in the company through a brokerage. After that, the company will take whatever dividends it would normally send as a check and instead it will reinvest them to purchase more shares in the company for you, all without charging a commission.
The only drawback is that the investor has no control over when his/her money from the dividends is used to purchase new stock in the company, which means he/she might be buying new shares at sub-optimal times.
Under a dividend reinvestment plan (also known as a DRIP or a DRP), investors receive stock dividends in the form of additional shares in a company rather than as a cash payment. Investors who participate in a dividend reinvestment plan receive quarterly notification of new shares purchased. A dividend reinvestment plan is a convenient way for an investor to accumulate additional shares of a company on a regular basis. There are several advantages to participating in a dividend reinvestment plan; stock purchase fees are often lower or may be waived entirely and some companies offer stock at a discount to investors who participate in their dividend reinvestment plan. The value of the stock received through a dividend reinvestment plan is fully taxable. A dividend reinvestment plan may also be called automatic dividend reinvestment.
You may want to try and take on a dividend reinvestment plan if you think it will be a good earner for you.
The dividend reinvestment plan was a really good plan and I thought there was a lot more to it than I originally thought.
While the stock price hadn’t increased as much as the market average, the investor kept it because of the additional stock he was able to accrue from the dividend reinvestment plan.
Dividend Reinvestment Program
DRIP
DRP
reinvestment
direct purchase program
fractional share
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This glossary post was last updated: 29th October, 2021 | 0 Views.