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Common Stock Dividends and DRIP (Dividend Reinvestment Plan)

Common stock dividends are payments made by a company to its shareholders, usually in the form of cash or additional shares, as a portion of the company’s profits. A Dividend Reinvestment Plan (DRIP) allows shareholders to automatically reinvest their cash dividends to purchase additional shares of the company’s stock instead of receiving the dividends in cash. DRIPs offer shareholders a convenient way to increase their investment without incurring transaction fees, and they allow for compound growth over time as dividends generate more shares, which in turn generate additional dividends.

Example

An investor who owns 100 shares in a company receives a $1 dividend per share but opts to reinvest the $100 through a DRIP, using it to purchase additional shares instead of taking the cash.

Key points

• Common stock dividends are a portion of company profits distributed to shareholders.

• A DRIP allows shareholders to reinvest dividends automatically into more shares instead of receiving cash.

• DRIPs help shareholders grow their investment over time through compounding.

Quick Answers to Curious Questions

A DRIP allows shareholders to reinvest their cash dividends into additional shares of the company, helping to grow their investment over time without incurring transaction fees.

DRIPs offer compound growth, allowing shareholders to increase their ownership and potential returns by reinvesting dividends instead of taking cash payouts.

No, not all companies offer DRIPs, but many large publicly traded companies do provide this option to their shareholders.