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What is a DRIP?

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.

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