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Dividend Reinvestment

An equity investment option from a company is referred to as a dividend reinvestment program also known as a dividend reinvestment plan (DRIP). The overall objective of a dividend reinvestment is to take the investors dividends and reinvest them into equity. This is done for the purpose of price appreciation and compounding. Some dividend reinvestment plans will charge fees while others will not. Although the main purpose is to save dividends, some plans allow the enrollee to make periodic purchases of company stock. These are referred to as optional cash purchases (OCP). They may be free from commission, and may not need to be in whole-share increment.

There consist of several advantages to investing in a dividend reinvestment plan such as:

• The process to enroll in a DRIP is easy
• The opportunity to earn stock gratitude
• Dividends are automatically reinvested (usually without a charge attached)

Dividend reinvestment plans have become more popular recently as a means of investment because the plans allow investors to take advantage of dollar cost averaging. This is done with the income in the form of dividends that the company is paying out. Overall this allows the investor to retain the dividend yield, while obtaining the opportunity to earn from stock appreciation.

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