WHAT IS A DIVIDEND REINVESTMENT PLAN (DRIP)?
A Dividend Reinvestment Plan (DRIP) is a plan offered by a corporation that allows current investors of the corporation to reinvest all or a portion of their cash dividends into additional shares including fractional shares of the underlying stock on the dividend payment date.
A DRIP is an excellent way to increase the value of an investment.
This feature allows shareholders to purchase additional shares by sending in funds via a personal check or ACH withdrawal. The plan’s prospectus will state the terms of the plan as it pertains to cash contribution limits, timing of purchases and sales, how the shares are acquired and fees associated with the plan.
WHAT IS A DIRECT STOCK PURCHASE PLANS (DRSPP)?
A Dividend Reinvestment and Direct Stock Purchase Plan is a plan offered by a corporation that allows investors to purchase their initial shares through the plan.
It offers the same advantages of a Dividend Reinvestment Plan (DRIP) with the additional advantage of making the initial purchase through the plan.
Normally, initial purchases through the plan will have higher minimum cash contribution limits than that of a current investor.
ADVANTAGES FOR SHAREHOLDERS IN DRIP AND DRSPP PLANS
DOLLAR COST AVERAGING
Shareholders average out the price at which the stock is purchased as it moves up and down over a long period of time.
PURCHASE OF WHOLE AND FRACTIONAL SHARES
Shareholder’s entire dividend and cash contribution is used for purchases.
Shares are held at Continental in a book position and statements are sent to the shareholder to avoid the issuance of stock certificates.
Shares are often purchased with little or no broker commission.
SALE OF SHARES
Most plans allow shares to be sold through the plan.
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