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. Do penny stocks pay dividends?

    Because of the small market capitalization and revenues typical of most penny stocks, there are very few that offer dividends. ... Read Full Answer >>
  2. How do dividend distributions affect additional paid in capital?

    Whether a dividend distribution has any effect on additional paid-in capital depends solely on what type of dividend is issued: ... Read Full Answer >>
  3. When does the holding period on a stock dividend start?

    The holding period on a stock dividend typically begins the day after it is purchased. Understanding the holding period is ... Read Full Answer >>
  4. What kind of companies in the utilities sector offer the most stable dividends for ...

    Among the companies that offer the most stable dividends for risk-averse investors are large, solidly established U.S.-based ... Read Full Answer >>
  5. What average annual total return does the utilities sector generate?

    Due to their highly stable earnings and cash flows, utilities companies are popular among investors interested in dividend ... Read Full Answer >>
  6. Why is the utilities sector popular among value investors?

    The utilities sector is popular among value investors due to the dividends paid by utility companies as well as the traditionally ... Read Full Answer >>
Related Articles
  1. Mutual Funds & ETFs

    ETF Analysis: Utilities Select Sector SPDR

    Learn about the Utilities Select Sector SPDR ETF and the benchmark index it tracks, and understand what type of investors may be interested in the fund.
  2. Mutual Funds & ETFs

    ETF Analysis: iShares International Select Dividend

    Learn how the iShares International Select Dividend ETF provides investors an opportunity to gain exposure to high-quality companies outside the United States.
  3. Investing Basics

    How Do You Find Penny Stocks That Pay Dividends?

    Learn about how investors can use online stock screeners to obtain a list of dividend-paying penny stocks for their consideration.
  4. Investing News

    Understanding How Mutual Funds Pay Dividends

    The process by which mutual fund dividends are calculated, distributed and reported is fairly straightforward in most cases. Here's a look.
  5. Fundamental Analysis

    Bet on this U.S. Automaker for Long-Term Gains

    Ford holds a stronger technical position than General Motors and also pays a consistent dividend. This combination could mean greater 3-to-5-year returns.
  6. Stock Analysis

    2 Stocks to Bet on the Future of Space Exploration

    Learn about why investors must wait to invest in Space X, and read about other companies involved in the future of space exploration.
  7. Investing

    The 3 Biggest Misconceptions of Dividend Stocks

    To find the best dividend stocks, focus on total return, not yield.
  8. Professionals

    How Does Tim Cook's Management Style Differ from Steve Jobs?

    Understand the differences between Tim Cook and Steve Jobs. Learn if the perceived differences makes Cook a good or bad leader and CEO.
  9. Mutual Funds & ETFs

    What You Need To Know About Bond ETF Yields

    When it comes to fixed income investing, yield is an important component of a bond investment’s total return to accurately assess if it's the right move.
  10. Stock Analysis

    3 High-Yield Investment Grade Stocks You Should Consider

    Discover three high-yield investment-grade stocks for income and appreciation. Interest rate risk is the largest source of risk for investors.
RELATED TERMS
  1. Real Estate Investment Trust - REIT

    A REIT is a type of security that invests in real estate through ...
  2. Profit Margin

    A category of ratios measuring profitability calculated as net ...
  3. Dividend Yield

    A financial ratio that shows how much a company pays out in dividends ...
  4. Record Date

    The cut-off date established by a company in order to determine ...
  5. Dividend

    A distribution of a portion of a company's earnings, decided ...
  6. Target Payout Ratio

    A target payout ratio is a measure of what size a company's dividends ...

You May Also Like

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!