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Finance Dictionary and Glossary of Investment Terms
Dividend Reinvestment Plan
Definition 1.
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. also called Dividend Reinvestment Program.
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Definition 2.
A system whereby dividends on a stock are automatically reinvested in additional shares of stock, usually without fee and sometimes even at a discount.Also known as DRIPs, dividend reinvestment plans are justly popular with investors. For one thing, they solve the problem of how to reinvest dividends, which are typically paid in cash. For another, they offer a way to increase your stock holdings at minimal expense and effort. Built into the system is a form of dollar cost averaging.
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