Dividend Reinvestment Plan

Dividend Reinvestment Plan (DRP)

Plan which provides for automatic reinvestment of shareholder dividends in more shares of a company's stock, often without commissions. Some plans provide for the purchase of additional shares at a discount to market price. Dividend reinvestment plans allow shareholders to accumulate stock over the long term using dollar cost averaging. The DRP is usually administered by the company without charges to the holder.

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Dividend Reinvestment Plan

A practice or agreement in which dividends on a security are used to buy more of the same security rather than be disbursed to the investor in cash. A dividend reinvestment plan is relatively common in mutual funds; investors agree to use dividends and other capital gains to reinvest in more shares of the mutual fund. While this involves assuming more risk in the mutual fund, it carries the possibility of higher returns.

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dividend reinvestment plan (DRIP)

A plan that allows stockholders to automatically reinvest dividend payments in additional shares of the company's stock. Instead of receiving the usual dividend checks, participating stockholders will receive quarterly notification of shares purchased and shares held in their accounts. Dividend reinvestment is usually an inexpensive way of purchasing additional shares of stock because the fees are low or are completely absorbed by the company. In addition, some companies offer stock at a discount from the existing market price. Usually these dividends are fully taxable even though no cash is received by the stockholder. Also called automatic dividend reinvestment, reinvestment plan. See also super DRIP.

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Dividend reinvestment plan (DRIP). Many publicly held companies allow shareholders to reinvest dividends in company stock or buy additional shares through dividend reinvestment plans, or DRIPs.

Enrolling in a DRIP enables you to build your investment gradually, taking advantage of dollar cost averaging and usually paying only a minimal transaction fee for each purchase.

Many DRIPs will also buy back shares at any time you want to sell, in most cases for a minimal sales charge.

One potential drawback of purchasing through a DRIP is that you accumulate shares at different prices over time, making it more difficult to determine your cost basis -- especially if you want to sell some of but not all your holdings.

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Dividend Reinvestment Plan (DRIP)

What Does Dividend Reinvestment Plan (DRIP) Mean?

A plan offered by a corporation that allows investors to reinvest their cash dividends back into the company by purchasing additional shares or fractional shares on the dividend payment date.

Investopedia explains Dividend Reinvestment Plan (DRIP)

A DRIP is an excellent way to increase the value of an investment. Most DRIPs allow an investor to buy shares commission-free and at a significant discount to the current share price. Most DRIPS do not allow reinvestments much lower than $10. This term sometimes is abbreviated as DRP.

Related Terms:
• Common Stock
• Compounding
• Dividend
• Dividend Yield
• Dollar-Cost Averaging—DCA