A:

The word "DRIP" is an acronym for "dividend reinvestment plan", but "DRIP" also happens to describe the way the plan works. With DRIPs, the dividends that an investor receives from a company go toward the purchase of more stock, making the investment in the company grow little by little.

The "dripping" of dividends is not limited to whole shares, which makes these plans somewhat unique. The corporation keeps detailed records of share ownership percentages. For example, if the TSJ Sports Conglomerate paid a $1 dividend on a stock that traded at $10, every time there was a dividend payment, investors with the DRIP plan would receive one-tenth of a share in the TSJ Sports Conglomerate. Another feature that makes DRIPs popular is that there are no commissions or brokerage fees involved because the investor deals directly with the company.

To learn more, see The Perks Of Dividend Reinvestment Plans.

RELATED FAQS
  1. How do I deal with stocks that pay dividend on a monthly basis?

    If I own 1,000 shares of company ABC, which yields $.50 per share. That would equal to $500. So, my qu... Read Answer >>
  2. What effect does a company's dividend reinvestment plan have on its stock price? ...

    When a dividend is received, an investor has two options: to keep the proceeds in a bank account or reinvest them. For the ... Read Answer >>
  3. How can I purchase stocks directly from a company?

    There are a few circumstances in which a person can buy stock directly from a company. The following is meant to cover some ... Read Answer >>
  4. How are dividends usually paid out?

    Discover the two compensation methods commonly used by companies and mutual funds to make dividend payments on equity investments. Read Answer >>
  5. Is a Canadian resident allowed to participate in a direct stock purchase plan from ...

    There is no law that prevents Canadians from participating in direct stock purchase plans offered by U.S. companies. There ... Read Answer >>
  6. What's the smallest number of shares of stock that I can buy?

    The answer to this question is not as straightforward as it seems. Many people would say that the smallest number of shares ... Read Answer >>
Related Articles
  1. Investing

    The Perks Of Dividend Reinvestment Plans

    These plans offer shareholders a way to directly invest in some of the top companies without the commissions.
  2. Investing

    How Does a Dividend Reinvestment Plan Work?

    A dividend reinvestment plan allows investors to use their dividends to purchase more shares of the corporation’s stock, rather than receiving payment.
  3. Retirement

    6 Reasons Why Dividends Should Be Reinvested

    Learn about the advantages of dividend reinvestment programs and how they may benefit longer-term investors who want to build a position in a company.
  4. Investing

    5 Ways to Lose Money With a Dividend Reinvestment Plan

    Enrolling in a dividend reinvestment plan can backfire if you're not using it wisely, costing you money in the process.
  5. Markets

    Stocks Basics: Buying Stocks

    You've now learned what a stock is and a little bit about the principles behind the stock market, but how do you actually go about buying stocks? Thankfully, you don't have to go down into the ...
  6. ETFs & Mutual Funds

    How to Reinvest Dividends from ETFs

    Learn about reinvesting ETF dividends, including the benefits and drawbacks of dividend reinvestment plans (DRIPs) and manual reinvestment.
  7. Retirement

    Should Retirees Reinvest Their Dividends?

    Find out why dividend reinvestment may or may not be the right choice for retirees, depending on their financial needs and investment goals.
  8. Managing Wealth

    Are You Too Young To Care About Dividends?

    Find out why it's never too early to begin thinking about dividends and how dividend-bearing stocks and funds can grow your investment account effortlessly.
  9. Managing Wealth

    6 Stocks Retirees Should Consider in 2016 (JNJ,RAI,MSFT,SYY,GIS)

    These stocks don't just pay relatively generous dividends. They're also likely to be able, like Leonardo di Caprio, to survive the claws of a bear market.
  10. Financial Advisor

    Got Dividends? Here's How to Reinvest Them

    Reinvesting dividends is almost always a good idea if you intend to hold your shares for the long term, and there are several ways to do it.
RELATED TERMS
  1. Dividend Reinvestment Plan - DRIP

    A plan offered by a corporation that allows investors to reinvest ...
  2. Drip Marketing

    A strategy employed by many direct marketers where a constant ...
  3. Treasury DRIP

    A dividend reinvestment plan that uses dividends to purchase ...
  4. Drip Pricing

    A pricing technique in which only part of a product or service’s ...
  5. Distribution Reinvestment

    A process whereby the distribution from a limited partnership, ...
  6. Drip Feed

    1. The process of investing on an ongoing basis in a small but ...
Hot Definitions
  1. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  2. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  3. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  4. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
  5. After-Hours Trading - AHT

    Trading after regular trading hours on the major exchanges. The increasing popularity of electronic communication networks ...
  6. Omnibus Account

    An account between two futures merchants (brokers). It involves the transaction of individual accounts which are combined ...
Trading Center