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Dividend reinvestment plan allows existing shareholders of stock to reinvest their dividends in more shares of company stock without paying brokerage commissions.
Dividend reinvestment plan
In some cases, companies allow you to make additional cash purchases of more shares of stock, also commission free. This interesting spin on investing may sound attractive, but it’s often more bother than it’s worth: In order to qualify for most DRIPs, you must generally have already bought some shares of stock in the company.
Dividend reinvestment plan Drawbacks
Although DRIPs reduce your stock commissions on future purchases, they have their shortcomings:
*Investing in DRIPs is only available and cost-effective for investments held outside retirement accounts.
* You need to complete a lot of paperwork to invest in a number of different companies’ DRIP stock plans.
* Some companies that offer these plans are hungry — for whatever reason. They need to drum up support for their stock. These investments may not be the best ones for the future.
*DRIP plans don’t eliminate fees. You still pay fees to buy the initial shares of stock, and many DRIP plans charge nominal fees for additional transactions and services. |
dividend reinvestment plans