What is a Dividend Reinvestment Plan?

Answer:
A Dividend Reinvestment Plan (often referred

to as DRIP) is a financial investment program whereby dividends earned (equity) from a particular investment are reinvested, rather than paid as cash to the investor.

Dividend Reinvestment Plans typically allow for automatic reinvestment of equity back into the underlying company.

This method allows investors to keep their investments growing, with no out of pocket cash requirements. And, no brokerage fees apply with automatic Dividend Reinvestment Plans.

Investors still must pay applicable taxes on any dividends earned, whether recieved as cash dividends or reinvested back into the company stock.

One of the negative side-effects of Dividend Reinvestment Plans is the need for the investor to keep accurate records of cost-basis for all the "pieces" of stock shares that are purchased with equity. Since the periodic dividends are typically not enough to purchase complete stock shares, fractions of shares are purchased.