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. 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 >>
  4. 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 >>
  5. 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. 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. 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. Investing

    How Dividend Reinvestment Grows Your Money Faster

    Dividend reinvestment is a smart strategy for growing your investments faster over the long term, but it’s not a get-rich-quick proposition.
  6. Investing

    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. 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.
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. Trumponomics

    Trumponomics is a term for the economic policies of President Donald Trump.
  2. Universal Health Care Coverage

    An organized healthcare system that provides healthcare benefits to all persons in a specified region. Many countries, such ...
  3. Davos World Economic Forum

    The annual meeting of the World Economic Forum hosted at Davos—a small ski town in Switzerland—in January each year is among ...
  4. Smart Home

    A convenient home setup where appliances and devices can be automatically controlled remotely from anywhere in the world ...
  5. Efficient Frontier

    A set of optimal portfolios that offers the highest expected return for a defined level of risk or the lowest risk for a ...
  6. Basis Point (BPS)

    A unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly ...
Trading Center