What are DRiPs?

DRiPs: Dividend Reinvestment Plans

There is a lot of confusion about what exactly a DRiP is. Simply put, DRiP is an acronym for a Dividend Reinvestment Plan; however, the term has come to encompass “Dividend Reinvestment Plans,” “Direct Investment Plans” and “Direct Stock Purchase Plans”. There are minor, but key, differences to each of these, however.

1. Dividend Reinvestment Plan: This is a “pure DRiP” and refers to the process of using dividends received from a particular stock to purchase additional shares in that same stock. The investor elects to have his or her dividends automatically reinvested into additional shares of stock rather than receive a cash dividend. Most DRiPs require that the enrollee already own one share of stock in the company before participation is allowed.
2. Optional Cash Purchases/Direct Investment: Many DRiPs offer participants the ability to make additional, optional cash investments once enrolled. These investments can usually be made in increments as small as $10 and usually on a weekly, monthly or quarterly basis. The dividends received on each of these share purchases are then reinvested in additional shares as part of the company’s DRIP plan.
3. Direct Stock Purchase Plans: While Dividend Reinvestment Plans requires current shareholder status before participating, many transfer agents have begun to offer Direct Stock Purchase Plans for those interested in enrolling in a company’s DRIP. These programs allow the interested investor to enroll in a company’s DRIP even if he or she is not a current shareholder. These plans require initial account minimum investments of $250 or more, as well as charge account set-up fees up to $50.

As someone who has worked on Wall Street for the past several years, our editor has seen the disdain by which financial advisors and stockbrokers view average, retail investors. As a group, we have seen how products that do not fit a particular investor’s investment style have been forced upon those unsuspecting investors all in the pursuit of higher commissions. Like you, we have grown tired of this process and have committed ourselves to helping average investors take control of their own financial futures by completely bypassing stockbrokers, and Wall Street, when saving for retirement.

DRIPs are offered by more than 1,000 companies as a way to attract a loyal shareholder base with long-term investment horizons. The plans are constructed such that interested investors can purchase shares of stock directly from a company, as well as reinvest any dividend received on those shares into additional shares in the company. All of this can be done WITHOUT THE USE OF A BROKER

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