Dividend Re-Investment Program

A DRIP, or Dividend ReInvestment Program, is a method of investing that makes it easy to build an investment in a single companies stock, over a period of time. These programs work by allowing investors to buy a set price worth of shares on a recurring basis. Entry costs are generally low, and additional benefits come from the fact that investors buy from the company directly and so avoid brokers fees. The key feature of a DRIP is that dividends paid are reinvested in the company, with additional shares being automatically bought on the investors behalf.

Drip investment programs at their heart seem relatively simple, and are often offered to employees of the company in question. Outside of the company, DRIPs are popular among beginning investors who see the low entry cost and the ability to get more shares over time without having to decide when to buy. Despite the fact that DRIPs are attractive to these investors, they should not be overlooked as a strong part of a diverse portfolio for a more experienced investor.

One often overlooked fact is that you can participate in a DRIP with as little as one share, in some cases. This, coupled with the lack of brokers fees, means that it is possible to snap up low numbers of speculative shares in a range of companies that a seasoned investor feels might have potential to undergo rapid growth. In fact, shares can be bought in any company in which an investor wishes to take a long term position using that companies DRIP rather than going through a broker – although every DRIP has varying conditions and not all are fee-free. The best place to find this information is on the web site of the company you are considering.

Another point worth remembering is that dividends paid on shares held as a DRIP do not have to be reinvested! Subject to the company, investors can choose to reinvest part or none of a dividend, and have the rest paid out as usual, making the DRIP perform exactly like a conventional investment (and possibly minimizing tax complications). So regardless of your level of investment experience – DRIPs can be a valuable (yet cheap) way to build your portfolio!

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