What Is Dividend Reinvestment Plans (DRIP or DIPs)

May 29, 2009

Companies offer DRPs as a way for their shareholders to buy stock directly from the company (usually through a transfer agent) in very small to large amounts, and usually on a monthly basis if desired. These plans get their name from the fact that they also reinvest dividends paid, using these dividends to purchase more stock. Thus the name "Dividend Reinvestment Plan." The specifics of whether or not you have to reinvest the dividends depends on the plan.

DRPs are a way to begin investing with a very small amount of money and to keep investing monthly (or as frequently as you can afford) in small or large amounts while avoiding brokerage commissions and reinvesting dividends. In the long term, it's a great and "patient" way to grow money.

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