Dividend Reinvestment Plan

Investing

Dividend Reinvestment Plans (DRIPs) automatically use cash dividends to purchase additional shares, accelerating wealth compounding without manual reinvestment. Available directly from many companies (sometimes with discounts or no transaction fees) and from most brokerages. DRIPs purchase fractional shares, eliminating the dividend cash drag. Tax treatment: dividends remain taxable even when reinvested — you pay tax on income you never see as cash. Track cost basis carefully — each reinvestment creates a new lot. Modern brokerages (Fidelity, Schwab, Vanguard) handle this automatically. Long-term, DRIPs dramatically increase share count and total returns — the bedrock of buy-and-hold income investing.