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. 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 >>
  2. 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 >>
  3. 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 >>
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. Investing

    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. 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.
  5. Retirement

    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.
  6. Financial Advisor

    How to Plan for Taxes on Dividends

    Dividends are taxed differently than other investment income. Here are some strategies to help lower taxes on dividends.
  7. Investing

    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.
  8. Retirement

    Reinvesting Dividends Pays in the Long Run

    Find out why dividend reinvestment is one of the easiest ways to grow wealth, including how this tactic can increase your investment income over time.
RELATED TERMS
  1. Treasury DRIP

    A dividend reinvestment plan that uses dividends to purchase ...
  2. Distribution Reinvestment

    A process whereby the distribution from a limited partnership, ...
  3. Systematic Investment Plan - SIP

    This is a plan where investors make regular, equal payments into ...
  4. Dividend Policy

    The policy a company uses to decide how much it will pay out ...
  5. Forward Dividend Yield

    An estimation of a year's dividend expressed as a percentage ...
  6. Dividend Rate

    The total expected dividend payments from an investment, fund ...
Hot Definitions
  1. Free Carrier - FCA

    A trade term requiring the seller to deliver goods to a named airport, terminal, or other place where the carrier operates. ...
  2. Portable Alpha

    A strategy in which portfolio managers separate alpha from beta by investing in securities that differ from the market index ...
  3. Run Rate

    1. How the financial performance of a company would look if you were to extrapolate current results out over a certain period ...
  4. Hard Fork

    A hard fork (or sometimes hardfork) is a radical change to the protocol that makes previously invalid blocks/transactions ...
  5. Interest Rate Risk

    The risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between ...
  6. Ethereum

    Ethereum is a decentralized software platform that enables SmartContracts and Distributed Applications (ĐApps) to be built ...
Trading Center