What Is A Dividend Reinvestment Plan?

by Hank Coleman

DRIPs are dividend reinvestment plansDRIP is an acronym for a dividend reinvestment plan. This type of investment program is a convenient way to buy stocks in a particular company without the assistance of a broker. Investors may purchase stocks by either:

  • Having the dividends they obtain reinvested to buy more stock; or
  • Purchase shares with minimum optional monthly payments of $25 or $50.

Who Should Investing In A DRIP?

DRIPs are plans you may want to include in your portfolio for retirement or for long-term savings goals as they offer the investor a number of advantages. DRIPs allow you, the investor, to acquire stocks that are well-regarded and highly valued. Plus, you are not under any obligation to invest into the account each month.

Whether you have a lot of money or have little to spare, DRIPs give you the opportunity to own company stock in some of the largest companies. You can purchase whole shares or fractional shares and will accumulate whole or fractional dividends. In many dividend reinvestment plan programs, you are entitled to buy discounted shares. As a result, you receive an automatic profit on your investment. DRIPs, in many instances, charge little or nothing to purchase shares.

How Do You Sign Up For A DRIP?

To sign up for a DRIP, you either have to already own a share of the company’s stock, or you can buy stock directly for an initial investment. If you want to enroll in a dividend reinvestment plan that requires a share of stock to join, then you will need to go through a broker to obtain that first share.

On the other hand, if you want to avoid using a broker, you can sign up directly, as stated, with many companies offering DRIPs. Usually, your initial investment will be in the neighborhood of $250 with the option of making monthly payments of $25 or $50.

DRIPs with direct purchase plans allow you to invest in the stock by automatically withdrawing a certain amount from your bank account on a monthly basis. If you want to maintain a schedule of ongoing investing for savings or retirement, this is an excellent route to take. Several DRIPs also provide individual retirement accounts or IRAs that the company will administer for you, usually for a small charge annually.

If you decide to participate in a dividend reinvestment plan or a direct purchase plan, you will first need to request the company provide you with the plan prospectus which can give you all the information you need about the plan. Usually, you can obtain these details from the website of the company.

Once you sign up and pay your initial investment, you can start making additional investments immediately. The certificates of stock will be in the possession of the company and can be obtained at your request.

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About Hank Coleman

Hank Coleman is the founder of Money Q&A, an Iraq combat veteran, a Dr. Pepper addict, and a self-proclaimed investing junkie. He has written extensively for many nationally known financial websites and publications. Hank holds a Master’s Degree in Finance and is currently pursuing his Certified Financial Planner credentials. Email him directly at Hank[at]MoneyQandA.com.


Hank Coleman has written 497 articles on Money Q&A. Learn more about Money Q&A on Twitter @MoneyQandA and @HankColeman.


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{ 2 comments… read them below or add one }

Paul Ribecky

Where can I get a list of Companies that participate in dividend reinvestment?

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Hank Coleman

Paul,
Most companies use Computershare as their transfer agent. I have almost all of my DRIPs invested through their service. That would be a good place to start for a list.

https://www-us.computershare.com/Investor/
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