Dividend Reinvestment Plan - DRIP

The dividend reinvestment plan (DRIP) is a program provided by the company, and investors can reinvest cash dividends on additional shares or shares of underlying stock at the dividend payment date.

For most DRIPs, investors can significantly lower the current stock price and purchase shares without fees, but can not reinvest significantly below $ 10. This term is sometimes abbreviated as "DRP".

Many companies are offering DRIP and shareholders can choose to reinvest in dividends declared by purchasing additional shares. Usually, when paying a dividend, shareholders use it as a check or directly in a bank account. Stock purchased through DRIP is usually procured from its reserves and can not be sold through stock exchanges. It is necessary to redeem shares directly through the company.

These dividends are not actually collected by shareholders, but still need to be reported as taxable income. If the company does not provide DRIP, many brokers are allowed to reinvest dividends on shares held in arbitrary shares held in investment accounts, so they can be established through securities companies I will.

Purchasing shares through DRIP has several advantages. DRIP provides shareholders with a way to collect more inventory without paying commissions. Many companies offer discounts of 1% to 10% of the current stock price at discount prices through DRIP. Between the case where there is no fee and the case of discounting, the cost base by ownership of shares may be significantly lower than the cost base when purchasing stocks in open market.

In the long term, the biggest advantage is the effect of automatic reinvestment on compound interest. As dividends increase, shareholders get more money from their stocks, which can also buy more stocks. Over time, this will increase the possibility of a total return on investment. As the stock price goes down, you can purchase more stocks at any time, so there is a possibility that revenue will increase over the long term

Companies that pay dividends can benefit from DRIP in several ways. First, when you buy a DRIP stock from the company, it creates more money for the company. Second, shareholders involved in DRIP are less likely to sell shares when the stock market declines. One reason is that stocks are less liquid than stocks purchased in the open market. Another reason is that DRIP participants can more easily recognize the role of their dividends in the long-term growth of their investment.

Dividend Reinvestment Plan or Dividend Reinvestment Plan (DRIP) is an equity investment option offered directly from the underlying company. Investors do not receive quarterly dividends directly in cash but investors' dividends are directly reinvested in the relevant capital. This allows you to immediately invest in the return on investment of a dividend without raising brokerage fee or to achieve price rise and compounding without waiting for sufficient accumulation. Cash to get all inventory. Some DRIPs are free to participants and other DRIPs charge fees and / or proportional commissions.

Chuck Carlson is a major expert in the financial communications industry's dividend reinvestment program (DRIP) for 25 years. The contributor and editor of MoneyShow.com, DRIP Investor, explained the basics of these programs and emphasized favorite DRIP with four different disciplines - favorites, rotation, finance, economically sensitive stocks . More than 650 companies provide DRIP that allow existing shareholders to purchase shares directly from the company bypassing brokers and brokerage fees. (An individual usually talks to a transfer agent, which is a group the company hires to manage its dividend reinvestment plan.)

Many companies offer dividend reinvestment plans (DRIP). Through these plans, investors can automatically redeem their dividends and purchase additional shares to use the combined return method. It is standard for online brokers to make these plans the default choice of shareholders, if feasible. Please be aware that shareholders are still taxing DRIP dividends as if paying in cash. They offer great opportunities for automatic reinvestment, but they are not mandatory. If investors need ordinary profit, it is best to ignore the DRIP plan.