DRIP Stock Investing: How to Collect More Stock on Autopilot

DRIP is an acronym for Dividend Reinvestment Plan. It is an arrangement where dividends are automatically reinvested into more shares.

When you buy dividend stocks, companies pay you periodically for holding their shares. A dividend is a way for the company to say thank you for investing in us, and dividends mostly come from the company’s profits in the previous year.

A DRIP plan offers investors an opportunity to reinvest their cash dividend and purchase the company shares. However, they will need to buy the shares directly from the company.

For instance, you have 1000 shares in a company that pays $1 per share in dividends. Therefore, if you enroll in a DRIP program, you will get $1000 in dividends.

However, if we assume that the company’s stock is trading at $50 when receiving the dividend, you will be allocated an additional 20 shares instead of a dividend check.

Dividend dripping isn’t limited to a whole share, and this is why these plans are unique. The companies keep good records of the percentage of share ownership.

Like the words suggest, fractional shares are a fraction of a whole stock. That means you can own 1.75 of a share instead of two shares.

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