Dividend Reinvestment Plan

A dividend reinvestment plan (DRIP) allows shareholders to automatically reinvest their cash dividends to purchase additional company shares, usually at no extra cost and often at a discounted price. This strategy helps investors grow their holdings over time by compounding returns without needing to purchase new shares manually. DRIPs are a popular way for long-term investors to build wealth gradually. Investors participating in a DRIP benefit from the power of compounding, as the reinvested dividends lead to more shares, which in turn earn more dividends.

Example

An investor earns $100 in dividends from a company and automatically reinvests that amount to buy additional shares through the DRIP program.