What is a DRIP?

By Investopedia Staff AAA
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 is the difference between the dividend yield and the dividend payout ratio?

    Learn the differences between a stock's dividend yield and its dividend payout ratio, and learn why the latter might be a ...
  2. What metrics should I evaluate when looking for high-yielding dividend stocks?

    Evaluate high-yield dividend stocks to determine if they are a good investment to produce steady income. Learn what questions ...
  3. What's the safest way to invest in high-yielding dividend stocks?

    Learn about some of the most important safety factors that you need to consider before you invest in high-yielding dividend ...
  4. Which is more important - dividend yield or total return?

    Learn to distinguish between those times when dividend yield or total return is a more useful performance metric for a company's ...
RELATED TERMS
  1. Accelerated Dividend

    Special dividends paid by a company ahead of an imminent change ...
  2. Sucker Yield

    When an investor has essentially risked all of his capital for ...
  3. S&P 500 Dividend Aristocrats

    Companies that have had an increase in dividends for 25 consecutive ...
  4. UPREIT

    Short for umbrella partnership real estate investment trust, ...
  5. DownREIT

    A joint venture between a real estate owner and a real estate ...
  6. Current Dividend Preference

    A safety feature of preferred shares, whereby holders of such ...
Related Articles
  1. Preferred Stocks versus Bonds: How to ...
    Trading Strategies

    Preferred Stocks versus Bonds: How to ...

  2. Why BOND Still Might Be In A Class Of ...
    Investing

    Why BOND Still Might Be In A Class Of ...

  3. Keeping More Of Your ETF Capital Gains ...
    Investing

    Keeping More Of Your ETF Capital Gains ...

  4. What You Need To Know About Preferred ...
    Trading Strategies

    What You Need To Know About Preferred ...

  5. Investor, Know Thyself: Choose A Stock ...
    Investing Basics

    Investor, Know Thyself: Choose A Stock ...

Trading Center