UK Accounting Glossary
DRIP is the acronym for Dividend Reinvestment Plan. In a DRIP, any dividends paid out by a stock are automatically used to purchase more of the stock. DRIPs are generally administered by the company itself. Bypassing brokers allows DRIP participants to buy stock without paying commissions. To increase participation in DRIPS, companies sometimes offer a discount to the market price as an incentive. DRIPs are a convenient way to implement dollar-cost averaging, which is a method of spreading the purchase of stock over an extended period of time. Because a DRIP is not administered through a brokerage, it is not possible to actively trade any stock held inside it. If it becomes necessary to sell the holdings in a DRIP, they must first be moved to a brokerage, which may take days if not weeks to complete.
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This glossary post was last updated: 9th February 2020.