Dividend Reinvestment Plan (DRIP)

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Definition of 'Dividend Reinvestment Plan (DRIP)'

A dividend reinvestment plan (DRIP) is an investment plan that allows shareholders to automatically reinvest their dividends back into the company's stock. This can be a great way to grow your investment over time, as you can buy more shares of stock with your dividends.

There are a few different ways to set up a DRIP. You can do it through your brokerage account, or you can contact the company directly. Once you're set up, your dividends will be automatically reinvested into the company's stock on a regular basis.

There are a few benefits to using a DRIP. First, it's a great way to dollar-cost average your investments. This means that you'll be buying more shares of stock when the price is low and fewer shares when the price is high. This can help you to smooth out the volatility of your investment returns.

Second, DRIPs can help you to accumulate shares of stock over time. This can be a great way to build wealth, as you'll own a larger stake in the company as time goes on.

Third, DRIPs are often free to set up and use. This means that you can start investing in a DRIP without having to pay any fees.

There are a few drawbacks to using a DRIP. First, you may not have as much control over your investments as you would if you were investing in individual stocks. This is because you're automatically reinvesting your dividends into the company's stock, regardless of whether or not the stock is a good investment.

Second, DRIPs can be less liquid than other investment options. This means that it may be more difficult to sell your shares of stock if you need to do so quickly.

Third, DRIPs may not be available for all companies. Some companies do not offer DRIPs, or they may only offer them to certain shareholders.

Overall, DRIPs can be a great way to grow your investment over time. However, it's important to understand the benefits and drawbacks of DRIPs before you decide if they're right for you.

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