The ins and outs of … Dividend Reinvestment Plans

Article Excerpt

Some companies offer their shareholders dividend reinvestment plans, or DRIPs, which allow investors to receive additional shares instead of cash dividends. For a number of reasons, we think DRIPs are a good way to slowly build wealth over a long period of time. First, DRIPs eliminate the nuisance effect of receiving small cash-dividend payments. Second, some DRIPs let you buy shares from your reinvested dividends at a 2% to 5% discount on the current share price. Third, many DRIPs also allow you to buy additional shares on a monthly or quarterly basis without paying commissions. Keep in mind, though, that too many investors choose stocks solely because of a DRIP. The availability of a reinvestment plan should be viewed as a bonus and not as the sole reason to invest. The advent of low-cost discount brokerages and online investing has slashed commission costs. That means DRIPs are now less of an advantage than they used to be. Remember, too, that taxes are still…

You are trying to access subscriber-only content.

To read this article, you may subscribe or sign in.
If you are already a subscriber, log in here.

If you wish to become a subscriber, click here. Or you may enjoy access to all our publications when you become a Member of Pat McKeough's Inner Circle Pro.