How to Invest in a Dividend Reinvestment Plan (DRIP)

A Dividend Reinvestment Plan or a DRP or DRIP as they are commonly called are direct stock purchase plans where you purchase shares directly from the company instead of through a stock broker. The name comes from the fact that any dividends that are earned on the shares you own are re-invested to purchase more stock rather than issued to you in the form of a quarterly dividend check. There are 3 main advantages when investing through a drip:

1. Dividends are automatically re-invested thus buying you more ownership of shares.

2. The cost to participate in drp's are minimal usually just around $25 to $50 dollars a month. So they are great for small investors and beginning investors. As well as seasoned long term investors that want to invest regularly in a company directly.

3. You can buy a little as one share. There are usually no transaction fees or minimal transaction fees per purchase so you can also save on brokerage commissions.

DRIPS are great vehicles for those wish to purchase shares on a long term basis.

One of the minor drawbacks of DRIPS is that the company decides when to purchase your shares. Sometimes also there is a fee for liquidating your shares. So therefore DRPS are not good for traders. They are an excellent and hassle free vehicle for long term investors in Blue Chip companies.

Most of the companies that offer drips are larger, well established companies that offer regular quarterly dividends, such as GE, Proctor & Gamble, IBM, McDonalds. Utility companies such as Hawaiian Electric are great companies to take advantage of DRIP investing.

You don't need to subscribe to a service or invest in a book to learn more about DRIPS. Although you may find some helpful and useful information in these. You can start participating yourself - directly. It's simple. Here's how...