We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.

What are DRIPs?

Malcolm Tatum
Updated May 17, 2024
Our promise to you
WiseGeek is dedicated to creating trustworthy, high-quality content that always prioritizes transparency, integrity, and inclusivity above all else. Our ensure that our content creation and review process includes rigorous fact-checking, evidence-based, and continual updates to ensure accuracy and reliability.

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

Editorial Standards

At WiseGeek, we are committed to creating content that you can trust. Our editorial process is designed to ensure that every piece of content we publish is accurate, reliable, and informative.

Our team of experienced writers and editors follows a strict set of guidelines to ensure the highest quality content. We conduct thorough research, fact-check all information, and rely on credible sources to back up our claims. Our content is reviewed by subject-matter experts to ensure accuracy and clarity.

We believe in transparency and maintain editorial independence from our advertisers. Our team does not receive direct compensation from advertisers, allowing us to create unbiased content that prioritizes your interests.

Dividend reinvestment plans, or DRIPs, are investment strategies that make it easier to utilize the dividends generated by various holdings to purchase additional shares of those same holdings. In many cases, a DRIP investing approach calls for establishing a mechanism that automatically allows all or a portion of dividends received from selected shares of stock to be used as the funds for purchasing more shares of those same stock options. With this approach, investors can incrementally increase their holdings in a particular stock holding, which in turn yields additional dividends over time.

In actual practice, DRIPs work by circumventing the need to actually issue a dividend payment to the stockholder. Instead, the investor receives notification of the total dividend earned for the period, then a breakdown of the number of shares that have been purchased with that dividend. It is not unusual for the issuing company to cover any broker’s fees associated with the transaction, and also to price the shares at a slight discount.

Both investors and companies can benefit from the use of DRIPs. For investors, the ability to acquire additional shares is more or less automatic, making it possible to avoid the hassle of submitting an order to a broker in order to acquire additional shares. At the same time, the investor is able to acquire those additional shares at a unit price that is less than the current market price. The end result is the ability to build a profitable portfolio for less money and effort, a strategy that is often considered a great way to manage long-term investment options.

Companies also benefit from the DRIPs approach. The ability to sell additional shares to investors instead of issuing dividends effectively helps the business raise additional capital for use in expanding the business operation. In addition, the company saves on the expenses normally related to mounting some type of public offering, since the current investors are acquiring available shares through the DRIPs program.

One potential liability of a DRIPs strategy is that, should the shares issued by the business begin to falter in the marketplace, the investor may do well to receive the dividends and begin selling off his or her shares before the stock price reaches a certain low level. Depending on how the DRIPs approach is structured, there may be a waiting period before those recently acquired shares can be offered for sale. For this reason, reading the terms and conditions associated with the DRIPs offering before committing to this strategy is extremely important.

WiseGeek is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Malcolm Tatum
By Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing to become a full-time freelance writer. He has contributed articles to a variety of print and online publications, including WiseGeek, and his work has also been featured in poetry collections, devotional anthologies, and newspapers. When not writing, Malcolm enjoys collecting vinyl records, following minor league baseball, and cycling.
Discussion Comments
Malcolm Tatum
Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing...
Learn more
WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.

WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.