Dividend Reinvestment Plans (DRIP)

Dividend reinvestment plans are one way that you can purchase stock directly from a company. These plans are very effective and they are popular among many investors. Here are the basics of the dividend reinvestment plan and how it works.

Dividend Reinvestment Plan

Once you own stock in a particular company, you will usually be able to sign-up for a dividend reinvestment plan. Typically, you only have to own one share of stock to get involved. With this type of plan, you are going to be able to automatically reinvest the dividends that are issued by the company back into shares of stock. You will also be able to add your own money into purchasing shares monthly in most cases. 

Many investors do not know about these plans because brokers do not regularly talk about them. When you choose to get involved in a dividend reinvestment plan, you are basically going around your stock broker. They are not going to get any commission off of the stocks that you purchase through this plan. You are going to be working directly with the company to purchase shares of stock. This means that you are not going to have to pay any commissions or fees to purchase your shares. 

How to Get Involved

The process of getting involved with a dividend reinvestment plan is usually quite simple. When you buy a share of stock from a company, you are going to be provided with basic information about the company. With this information, you will be able to contact them directly about joining a dividend reinvestment plan. They will typically have a basic form for you to fill out. Once you have completed the form, you should be ready to start investing. Some companies will actually allow you to set up an automatic debit that will allow you to purchase stock every month.

Advantages

Investing in a dividend reinvestment plan can provide you with several advantages when compared to other methods of investment. First of all, it allows you to get started with very small amounts of money. They are going to reinvest the dividends that you receive from your shares and you can add money to that investment.

Another benefit of this type of program is that you are going to be able to implement dollar cost averaging into your investment strategy. Dollar cost averaging is a method that is proven to work over the long-term. It deals with regularly investing the same amount of money into a particular security. By doing this, you are going to purchase more shares when the price is low and fewer shares when the price is high.

By getting involved in this type of program, you are going to be able to form a beneficial habit. Most of the time, you will not even miss the money that is being invested because it is such a small amount. Before you know it, you have a large amount of stock in a successful company.

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