Dividend Reinvestment Plan (DRIP)

A Dividend REINvestment Plan (DRIP) is an investment strategy that allows Shareholder/">Shareholders to rEINvest their cash dividends into additional Shares of the company’s Stock, rather than receiving the dividends in cash. This plan enables investors to accumulate more Shares over time without incurring brokerage fees, as the purchase of additional Shares is often facilitated directly by the company.

For example, if an investor holds 100 Shares of a company that pays a quarterly dividend of $1 per Share, the investor would receive $100 in dividends. Under a DRIP, instead of taking the cash, the investor opts to rEINvest that $100 to purchase additional Shares of the company’s Stock, which may allow them to acquire, say, 2 additional Shares if the Stock price is $50. This process can compound over time, leading to significant growth in the number of Shares owned and, consequently, the value of the investment.

In cases where the Stock price fluctuates, DRIPs can also allow investors to buy Shares at different price points, potentially benefiting from dollar-cost averaging. For instance, if the Stock price rises to $60 in the next quarter, the same $100 dividend would now buy approximately 1.67 Shares, as opposed to 2 Shares at the lower price. This illustrates how DRIPs can help investors take advantage of market conditions and build their investment steadily.