Updated on January 16th, 2024 by Bob Ciura. DRIP stands for Dividend Reinvestment Plan. When an investor is enrolled in DRIP stocks, it means that incoming dividend payments are automatically used to purchase additional shares of the same stock, rather than being received as cash. This strategy, known as dividend reinvestment, offers an attractive opportunity for investors to accumulate more shares in the company or fund that paid a dividend.
Dividend reinvestment, or DRIP, is an attractive strategy where you buy more shares in the company or fund that paid a dividend, instead of receiving the dividend as cash. This approach allows you to compound your investment returns by reinvesting the dividends and acquiring more shares over time. By continuously reinvesting the dividends, investors can take advantage of the power of compounding and potentially increase their overall wealth.
Investors have several options for their dividend income. Dividend reinvestment enables investors to buy more shares of the same stock to potentially benefit from the stock's price appreciation and future dividend payments. This approach can be particularly beneficial for long-term investors who aim to build a sizable portfolio and generate passive income.