Dividend Reinvestment Plans (DRIPs) offer shareholders a way to buy stock directly from the company or through a transfer agent, usually through a monthly plan. They get their name from the fact that they also reinvest dividends paid, purchasing more stock.

One of the advantages of DRIPs is that an investor does not need a large amount of money to start – many plans allow investors who own just one share to enroll in a DRIP. Many also allow dividends to be reinvested with no fees, and most will let investors to purchase additional shares through a DRIP for nominal fees. Some plans allow investors to purchase stock at discounts of up to 10% from the current market price.

Investors in DRIPs have a long term investment horizon, and invest money regularly, most commonly on a monthly basis. This means that investments also benefit from dollar cost averaging.

Many companies run their own DRIP schemes, allowing investors to buy directly without the requirements to own shares. The administration o fthese schemes can be costly, however, so it is common for DRIPs to be run by third party transfer agents, whose costs are lower because they often provide the same resources for several customers. Finally, some brokers will allow shareholders to reinvest dividends at no cost. However, these plans apply to dividends only and don’t allow optional cash purchases as most company sponsored DRIPs do, which is one of the mot attractive advantages of DRIPs.To continue reading, click here.