DIVIDEND REINVESTMENT PLAN
In the investing sector, DRIP stands for Dividend Reinvestment Plan. A DRIP is an investment program offered by some companies that allows shareholders to automatically reinvest their cash dividends into additional shares of the company's stock.
Companies that offer dividends will provide a 'dividend yield' that indicates the annual return an investor receives from owning a particular stock. It is expressed as a percentage and dividends can be paid monthly or quarterly.
Example: Scotia Bank ( ticker BNS ) yield is approx 6.50% paid quarterly
Here's how a DRIP typically works:
1. Eligibility: To participate in a DRIP, you usually need to be a shareholder ( own stocks ) of a company that offers the plan.
2. Dividend payment: When the company declares a dividend, instead of receiving the cash dividend directly, participants in the DRIP will receive additional shares of the company's stock.
3. Reinvestment: The company will use the cash dividends to purchase additional shares on behalf of the participating shareholders. The price at which the shares are purchased is often discounted from the market price, which provides a benefit to the shareholders.
4. Fractional shares: If the dividend amount is not enough to purchase a whole share, the DRIP program may allow for the purchase of fractional shares. This means that even small dividend amounts can be reinvested or the remaining money will be deposited into your CASH balance.
5. Compound growth: Over time, the reinvested dividends can accumulate and result in the compounding of investment returns. This can potentially increase the overall value of the investment.
DRIPs can be an attractive option for long-term investors who want to reinvest their dividends and increase their ownership in a company over time. By participating in a DRIP, investors can take advantage of compounding returns and potentially benefit from dollar-cost averaging, where they buy more shares when prices are lower and fewer shares when prices are higher.
Note that the dividend payments do not have to be reinvested or DRIP'd. Some people use dividend payments as a source of income. Leave their principle invested and use their dividends as a revenue stream.
It's important to note that not all companies offer DRIPs, and the specific terms and features of DRIPs can vary from one company to another. Investors interested in participating in a DRIP should research the specific details and requirements of each program before making investment decisions.
The information provided in this blog is for educational & entertainment purposes only. Consult with your professional investment advisor before making any investment decisions.
Adrienne Ashworth is a high energy, holistic, trans-formational Life Coach who helps women prioritize their well-being and take action with profound and sustaining results through her flexible coaching program Women Living Deliberately(TM).
She opened Tweak Solutions Inc in 2018 but has been coaching & empowering women since 2004. She is a member and accredited ICF Life Coach who provides coaching remotely from her office in BC, Canada.
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