Lux Investing

What is drip investing ?

Public Comments

1. DRIP's are investment plans that institute dollar cost averaging and reinvestment of dividends to provide generous long-term gains. You must keep in mind, the longer you keep the DRIP in effect, the better your return. They are seldom talked about because brokers make very little money when they suggest them. Yet, they have proven to be one of the best, if not the best, long-term strategy on Wall Street. The best part is you get solid annual returns from well-known, safe Blue Chip companies like: McDonalds, General Electric, Pfizer, Walmart, US Bancorp.......etc........ They are inexpensive to start and maintain, and your dividends are reinvested for free. They are perfect for small investors, as well as big investors. They are safe and allow you to not care about whether the market is going up or down.
2. Companies offer DRPs as a way for their shareholders to buy stock directly from the company (usually through a transfer agent) in very small to large amounts, and usually on a monthly basis if desired. These plans get their name from the fact that they also reinvest dividends paid, using these dividends to purchase more stock. Thus the name "Dividend Reinvestment Plan." The specifics of whether or not you have to reinvest the dividends depends on the plan. Advantages of DRPs * You don't need a large amount of money to start. Usually owning one share is all that is required to enroll in a DRP. * DRPs are a cost-effective way for Fools to put stock dividends to better use -- purchasing more shares of the company -- than simply spending the money or having it sit in a money market account. Most DRPs allow dividends to be reinvested at no fee. * Most companies allow investors to purchase additional shares through a Dividend Reinvestment Plan for nominal fees -- or often no fee at all. These stock purchase provisions, sometimes called Stock Purchase Plans (SPPs) or Optional Cash Purchase Plans (OCPs), allow an investor to send in as little as $10 to $50 at a time to purchase additional stock. * About 100 companies have DRPs that allow investors to purchase stock at a discount to the current market price. These discounts can range anywhere from one to ten percent. * DRPs "force" investors to buy stock on a regular basis and hold on to that stock. As a result, investors adopt a long-term horizon and often invest small amounts of money on a regular basis -- money that they usually don't even miss. Nearly 200 companies also offer the option to make periodic DRP investments through automatic debits from bank accounts.
3. A DRIP (dividend reinvestment plan) is a company run scheme whereby your dividends from that company are reinvested into more shares. If the dividend is not enough to buy at least one share then it is saved up for the next period. Usually companies have a 1% charge as they have to purchase the bulk of shares through their brokers. So it is not cheap, but does give you the opportunity of reinvesting relatively small amount of dividend money back into the stock thereby compounding the return. Different to a scrip dividend. This answer is from a UK perspective, maybe elsewhere it may differ slightly, but always check the cost. The other point to be aware of is if you decide to sell the shares whilst the dividend is about to be paid. You sell the shares and find a couple of months later you receive a SCRIP/DRIP certificate for a tiny amount of shares (say 1 or 2 shares); You are then stuck with these.See http://www.shareworld.co.uk OK seems other answers are presuming this is an American phenomonen. If they are accurate theses schemes, as well as reinvesting dividends allow shareholders to put more money into to the stock onsay a monthly basis at very little, or nil, cost. If so then it would seem an attractive proposition for US investors.