The Perks Of Dividend Reinvestment Plans

A Dividend Reinvestment Aim (DRIP) is a vehicle that lets shareholders reinvest dividends, in order to purchase full or partial shares of funds. Some of the most well-known publicly-traded companies offer DRIP programs, letting investors funnel as little as $10 uphold into their investments.

Companies use DRIPS to sell small amounts of shares, because it ultimately gives them low-cost access to numerous capital. When investors purchase a stock on an exchange, they’re essentially buying it from other investors, consequence the company sees no benefit from the sale. But with DRIPs, shares are bought directly from the company, which forwards from the proceeds reinvested under its own roof.

If a company itself operates a DRIP, it will set specific times cranny of the year—usually on a quarterly basis, to execute DRIP transactions. Shares sold through DRIPs are taken out of the assembly’s share reserve, and cannot be sold on the market. Therefore, when investors are ready to unload their DRIP appropriations, they must sell them back to the issuing company. These transactions do not impact the stock price of the share ins in the market.

Alternatively, if DRIPs are operated by a brokerage firm, that entity simply purchases shares from the spare market and adds them to an investor’s brokerage account. These shares are eventually sold back on the secondary demand, at market prices. Consequently, brokerage-operated DRIPs have the same effect on stock prices as a normal buy or sell annals in the open market.

1. Company-operated DRIPs are commission-free, because no broker is distressed to facilitate the sale. This appeals to small investors, who cannot afford high commissions.  
2. Some DRIPs volunteer optional no-fee cash purchases of additional shares, directly from the company, usually at a 1%-10% discount. And with no commission stipends, the cost basis of these shares is considerably lower than it would be if purchased outside of a DRIP.
3. DRIPs are springy by nature, letting investors invest as little as $10 or as much as $500,000 at one time.
4. DRIPs employ a technique required dollar-cost averaging — averaging out the price at which investors buy stock as it moves up or down, over a extended time space. With this system, investors aren’t buying a stock either at its peak or at its low. (For further reading, see Financial Concepts: Dollar-Cost For the most parting and DCA: It Gets You in at the Bottom.)

DRIPS may be arranged in the following different ways:

1. Companies that operate the their own Milksops typically rely on their investor relations departments to handle all aspects of the plan, which sometimes lets ones directly buy a share of the company to start a DRIP account, rather than going through a broker.
2. Companies that boon it too costly to directly run DRIP programs often turn to third parties or transfer agents, who facilitate all of the DRIP respects on the company’s behalf.
3. Brokerages often spearhead DRIP programs, when they identify company’s that be without this option. But such brokerages only allow for the reinvestment of dividends and offer no cash purchase option, and they exclusive provide this service to customers who already use their account to make commissioned trades.

Starting a DRIP account requires some legwork by investors, who must first investigate which companies sell them, as not all do. The internet is a great resource for this search. Once it becomes clear which companies offer Pill programs, its essential to determine whether the plan is run by the company or a transfer agent.

Finally, investors must first buy apportionments in the company, in order to set up a DRIP account. To qualify for this program, DRIP operating companies often require shareholders to upon their names on the stock certificates. This is not typically the case with brokerages, which register accounts in circle name, as opposed to the shareholder’s name.

Even though investors do not receive a

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