: How exactly do dividend reinvestment plans (DRIPs) work? And where can I find out what companies offer them? Are there good resources for information on these plans?

Vote Up Vote Down   0 Reactions

Login to give Reaction!

I think Wikipedia offers a very good explanation:

A dividend reinvestment program or dividend reinvestment plan (DRIP) is an equity investment option offered directly from the underlying company. The investor does not receive quarterly dividends directly as cash; instead, the investor's dividends are directly reinvested in the underlying equity. The investor must still pay tax annually on his or her dividend income, whether it is received or reinvested.
This allows the investment return from dividends to be immediately invested for the purpose of price appreciation and compounding, without incurring brokerage fees or waiting to accumulate enough cash for a full share of stock.

So essentially, a dividend reinvestment plan is offered by companies directly, allowing investors to bypass brokerages, and immediately re-invests dividends rather than paying them out in cash.
Investopedia also gives a straighforward definition:

A plan offered by a corporation that allows investors to reinvest their cash dividends by purchasing additional shares or fractional shares on the dividend payment date.
A DRIP is an excellent way to increase the value of your investment. Most DRIPs allow you to buy shares commission free and at a significant discount to the current share price. Most DRIPS don't allow reinvestments much lower than .

I had a hard time finding a comprehensive listing of companies that offered DRPs (or DRIPs), but MyDollarPlan.com offers these suggestions:

Finding a Dividend Reinvestment Plan:
Computershare offers one-stop shopping for hundreds of dividend reinvestment plans. They offer a searchable list that can be filtered to easily find a dividend reinvestment plan that fits your needs.
You can also use OneShare.
Probably the best way to find out if a company offers a dividend reinvestment plan is to visit the company website. Most companies have an Investor Relations area that will highlight the various options available to shareowners. For example: Coca-Cola, Disney, and Wal-Mart.

Hope this helps! @YMCbuzz