A term not too commonly heard of among non investors is a dividend reinvestment plan, commonly referred to as a DRIP. A DRIP is a way for people to buy shares in a company.
When you participate in a DRIPs program, you are authorizing the company in which you are buying your shares to take the dividends (profits) from the shares that you currently hold, and use those dividends to buy more shares of the company. These dividend reinvestment plans are offered by the company selling the shares. They allow investors participating in these DRIPs plans to buy more shares at set, certain times – sometimes monthly, other times quarterly, or in other time segments. Dividend reinvestment plans are also usually processed by a transfer agent.
Dividend reinvestment plans are often only open to people who already own shares in the company. The good news there is that you only need to own a single share to participate. These DRIPs are also a good way to be a prudent investor and spender: rather than giving you a dividend payment that you can quickly spend, the dividend reinvestment plan will take your profits (dividends) and put them back into more shares, thus increasing the size of your investment portfolio for you to access and enjoy for your retirement, or during a time of real financial emergency.
To learn more about DRIPs and how you can participate in one, and if it’s the right idea for you and your goals, be sure to consult with a financial advisor and go over everything in all the detail it requires.