DRIP (Dividend Reinvestment Plan)
An automated reinvestment arrangement whose pricing, fees, eligibility, taxes, and fractional-share treatment vary by provider.
A dividend reinvestment plan (DRIP) automatically uses eligible cash distributions to purchase additional shares under broker, fund, or issuer rules. Plans differ in enrollment, execution price, timing, fees, discounts, fractional shares, tax reporting, and treatment of special dividends.
Frequently Asked Questions
Do all DRIPs buy shares at a discount?
No. Some issuer-sponsored plans may offer discounts, but many broker DRIPs execute at market-based prices without a discount. Terms can change.
Is DRIP always better in a tax-advantaged account?
No universal answer applies. Reinvestment may fit a long-term allocation, but concentration, valuation, liquidity needs, required distributions, account rules, and portfolio rebalancing still matter.
Can DRIP create concentration risk?
Yes. Automatically buying the same security can increase exposure to one issuer, sector, currency, or factor, even when the dividend itself appears stable.
Can a DRIP be stopped immediately?
Not always. Enrollment and opt-out deadlines, pending distributions, settlement cycles, and broker processing can affect whether the next dividend is paid in cash or reinvested.