A DRIP stock is a stock that pays dividends directly to shareholders rather than reinvesting them in the company.
The first DRIP was established in 1931 by General Motors. Since then, many other companies have followed suit and now offer dividend reinvestment plans to their shareholders.
“Once you have an account, you can request that the company send you share certificates or enroll you in its electronic registration system.”
Also, there are now a number of brokerages that offer DRIP plans to investors who are not shareholders of the company.
This type of investment can be attractive for several reasons:
- They offer a simple way to invest in companies that pay regular dividends.
- They provide a way to reinvest your dividends without having to pay commissions.
- They often offer a discount on the shares when you purchase them through the DRIP program.
However, there are also some drawbacks to investing in DRIP stocks:
- The discounts offered through DRIP programs may not be as large as those available through other methods of investing.
- You may not be able to sell your shares as easily as you could if you held them in a regular brokerage account.
If you’re interested in learning more about DRIP stocks and how they can be used to build your investment portfolio, read on.
What is a DRIP Stock?
A DRIP stock is a stock that pays dividends directly to shareholders rather than reinvesting them in the company.
How Do DRIP Stocks Work?
When a company declares a dividend, it must decide what to do with the money. It can either reinvest the funds back into the business or pay the money out to shareholders in the form of dividends.
If the company decides to pay dividends, it has two options:
- Pay the dividend out to shareholders who own the stock on the record date.
- Reinvest the dividend into additional shares of stock (known as a “dividend reinvestment plan” or “DRIP”).
If the company chooses option 2, shareholders who are enrolled in the DRIP program will have their dividends automatically reinvested in additional shares of stock. These new shares are then added to the shareholder’s account.
Popular DRIP Stocks
There are many companies that offer dividend reinvestment plans to shareholders. Some of the most popular DRIP stocks include:
- Apple (AAPL)
- IBM (IBM)
- Johnson & Johnson (JNJ)
- Procter & Gamble (PG)
- ExxonMobil (XOM)
What Stocks Are Eligible for DRIP Plans?
Almost any publicly traded stock can be held in a DRIP account. However, not all companies offer dividend reinvestment plans to shareholders. To find out if a company offers a DRIP plan, check the company’s website or contact its investor relations department.
How to Buy DRIP Stocks
If you’re interested in investing in DRIP stocks, there are a few different ways to do it.
The first way is to buy shares of the stock through a regular brokerage account and then enroll in the company’s dividend reinvestment plan. To do this, you will need to have a brokerage account that offers DRIP plans (not all brokerages do).
Once you have an account, you can contact the company’s investor relations department to find out how to enroll in the DRIP program.
The second way to invest in DRIP stocks is to purchase them through a specialized DRIP investment plan. These plans are offered by some brokerages and allow investors to pool their money together to buy shares of stock in a single company.
DRIP investment plans typically have lower fees than regular brokerage accounts and can be a good option for investors who want to invest in a small number of companies.
The third way to buy DRIP stocks is to purchase them directly from the company. To do this, you will need to set up an account with the company’s transfer agent.
Once you have an account, you can request that the company send you share certificates or enroll you in its electronic registration system.
