Mint Money Knowledge Center: What is a DRIP?

There are many stories in the history of investing where a good idea starts out with as limited scope and then is expanded to a much larger idea when it becomes successful. Dividend Reinvestment Programs (DRIPs) are programs that allow investors to use their quarterly dividends to buy more stock in the company. It sounds simple, but it actually started out as a much smaller idea.

What is a DRIP

 

Employees Only

According to InvestorJunkie.com, DRIPs started out as programs offered exclusively to the employees of public companies. When employees were given the option of being paid their quarterly dividends or investing those dividends back into the company, they overwhelmingly chose to reinvest. Over time, this inspired companies to open DRIPs up to every investor.
 

Partial Shares Are Allowed

Investopedia.com points out that one of the unique features of DRIPs is that the investor is allowed to roll over dividends to buy partial stock instead of full stocks. For example, if a share costs $20 but your quarterly dividend is only $10, then you would be allowed to buy a half share with your DRIP. These are extremely easy programs to administer for companies and they make excellent ways for investors and employees to save money for retirement.

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