Dividend Reinvestment Plan


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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.

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.

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.

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.

References in periodicals archive ?
Dubofsky and Bierman (1988) examined the impact of the announcement of dividend reinvestment plans on a sample of 53 companies (33 utilities and 20 nonutilities).
Most companies that issue dividend-paying stock also have automatic dividend reinvestment plans. Instead of receiving a dividend check for $.72 on a $33.50 share of PepsiCo Inc., for example, PepsiCo automatically reinvests the dividend towards the purchase of more stock.
Dividend reinvestment plans do have some disadvantages, particularly in the area of taxation.
Shareholders may take part in the Dividend Reinvestment Plan and raise their holdings of common stock, IBERIABANK noted.
Additionally, the company stated that its shareholders may take advantage of the BNC Bancorp Dividend Reinvestment Plan, which provides a convenient way for them to increase their holdings of common stock.
The company also offers a Dividend Reinvestment Plan, which is eligible to holders of common shares and offers a chance to purchase additional common shares by reinvesting cash dividends at a potential discount, without having to pay commissions, service charges or brokerage fees.
Also, the company provides for the reinvestment of dividends through a dividend reinvestment plan (DRIP) on behalf of its registered stockholders who hold their shares with its transfer agent and registrar, American Stock Transfer and Trust Company, or certain brokerage firms that are participants in DRIP.
The company also offers a Dividend Reinvestment Plan to eligible holders of Class-A Shares that offers a provision to purchase additional Class-A Shares by reinvesting cash dividends at a potential discount to the current market price.
Dividend reinvestment plans. A plan sponsor that does not use the dividends on ESOP shares to repay an exempt loan alternatively can obtain a deduction by distributing the dividends to participants in cash within 90 days of the close of the plan year.
Dividend Reinvestment Plans (DRIPs) are programs that allow individuals to purchase stock directly from the company.
In addition, companies commonly provide dividend reinvestment plans for their shareholders.
Many corporations raise capital by adopting dividend reinvestment plans (DRIPs), which permit shareholders to reinvest dividends at a discount.