Dividend reinvestment plan (DRIP) - Financial definition
Concise definition of the term dividend reinvestment plan
A dividend reinvestment plan (DRIP) is a service offered by some publicly traded companies that allows investors to automatically reinvest their cash dividends into additional shares or fractional shares of the company's stock. This plan helps investors compound their returns over time without incurring brokerage fees.
Comprehensive definition of the term dividend reinvestment plan
Dividend reinvestment plans (DRIPs) provide a systematic method for shareholders to grow their investment by reinvesting dividends directly into the company, often at a discounted price and without transaction costs. These plans can be particularly beneficial for long-term investors looking to maximize the compounding effect.
Companies may offer DRIPs directly or through third-party administrators, and they are common among firms with stable, consistent dividend payouts. For example, major corporations like Coca-Cola and Johnson & Johnson have long-established DRIPs, enabling investors to accumulate more shares over time, enhancing their potential future returns.