What is a Dividend Reinvestment Plan (DRIP)?

A DRIP is the method of reinvesting cash dividends received from a company back into the stock of that company, incrementally increasing one's position.
May 16, 2020
Unlock Free Stock Insights + 50% Off Discount Code!
Join thousands of savvy investors and get:
  • Weekly Stock Picks: Handpicked from 60,000 global options.
  • Ten Must-Have Stocks: Essential picks to hold until 2034.
  • Exclusive Stock Library: In-depth analysis of 60 top stocks.
  • Proven Success: 10-year track record of outperforming the market.
Sign up to our mailing list now and enjoy a 50% discount on premium services!
By submitting your email address, you consent to us keeping you informed about updates to our website and about other products and services that we think might interest you. You can unsubscribe at any time. Please read our Privacy Policy and Terms of Use.

A dividend reinvestment plan, or a DRIP, is the method of reinvesting cash dividends received from a company back into the stock of that company, incrementally increasing one's position. When dividends come round every year, quarter -- or in some rare cases -- month, investors are asked the question; do you take the money or do you reinvest?

Here at MyWallSt, we don't actively seek out dividend investing opportunities. Not because we don't like getting handed a cheque every three months, but if a company starts offering dividends, it means that it is not using this money to reinvest into the company. Prioritizing dividends to shareholders means that is money not spent on growth. This approach is absolutely fine for large-cap, long-established companies like Coca-Cola (NYSE:KO) or McDonald's (NYSE:MCD), but it's definitely not something we want to see in our high growth stocks. 

However, it is not always this black and white. Microsoft (NASDAQ:MSFT) is an example of a company firmly in the gray area. With the second biggest market cap in the world and a public company since 1986, Microsoft is a company you would expect to be paying dividends, which it does at $0.51 per share a quarter. However, this does not hamper its rapid growth. The stock has more than tripled in the past five years. Performance worthy of some of the most impressive growth stocks.

Should You Enroll in a Dividend Reinvestment Plan?

A DRIP is a great tool for a long term investor. If nothing has changed from the time you conducted your research on the company at hand and made your first investment, and your belief in the company remains the same, then a DRIP is a fantastic way for you to incrementally increase your position in the company over time. 


















The benefits of a DRIP: 


  • As you are buying shares directly from the company, you forego brokerage fees and commissions
  • The ability to purchase fractional shares of the company, an option that may not be available from your broker. This is especially handy if the stock in question is particularly expensive, meaning you won't have to wait until you save enough to buy another share
  • If you're lucky, companies may even offer a discount on stock purchased through a DRIP
  • Enrolling is as simple as contacting your broker, you may even be able to enroll yourself if that option is provided by your online brokerage

One caveat of a DRIP is that even though the dividend is immediately reinvested, you would be taxed in the same manner as if it was cash. This may lead to a bit of a shock for the unaware come tax season, so don't say we didn't warn you!

To summarise, if you are a long term investor with the same belief you had in the company when you first invested, then you should sign up for a dividend reinvestment plan. 


MyWallSt operates a full disclosure policy. MyWallSt staff currently holds long positions in Microsoft. Read our full disclosure policy here.


Unlock Free Stock Insights +50% Off Discount Code!
Join thousands of savvy investors and get:
  • Weekly Stock Picks: Handpicked from 60,000 global options.
  • Ten Must-Have Stocks: Essential picks to hold until 2034.
  • Exclusive Stock Library: In-depth analysis of 60 top stocks.
  • Proven Success: 10-year track record of outperforming the market.
Sign up to our mailing list now and enjoy a 50% discount on premium services!
By submitting your email address, you consent to us keeping you informed about updates to our website and about other products and services that we think might interest you. You can unsubscribe at any time. Please read our Privacy Policy and Terms of Use.

The Home of Successful Investing.

© 2024 MyWallSt Ltd. All rights reserved.


Services

Content

Social

Company

Support

Resources


This website is operated by MyWallSt Ltd (“MyWallSt”). MyWallSt is a publisher and a technology platform, not a registered broker-dealer or registered investment adviser, and does not provide investment advice. All information provided by MyWallSt Limited is of a general nature for information and education purposes, and you should not construe any such information as investment advice. MyWallSt Limited does not take your specific needs, investment objectives or financial situation into consideration, and any investments mentioned may not be suitable for you. You should always carry out your own independent verification of facts and data before making any investment decisions, as we cannot guarantee the accuracy or completeness of any information we publish and any opinions that we publish may be wrong and may change at any time without notice. If you are unsure of any investment decision you should seek a professional financial advisor. MyWallSt Limited is not a registered investment adviser and we do not provide regulated investment advice or recommendations. MyWallSt Limited is not regulated by the Central Bank of Ireland. MyWallSt Limited may provide hyperlinks to web sites operated by third parties. Your use of third party web sites and content, including without limitation, your use of any information, data, advertising, products, or other materials on or available through such web sites, is at your own risk and is subject to the third parties' terms of use.