Dividend Reinvestment Plans (DRIPs)
Also coined as a dividend reinvestment program, a dividend reinvestment plan, or DRIP, is an option of equity investment which an underlying company is directly offering. Quarterly dividends are not being received by the investor straight as cash, only these dividends are being directly reinvested also in the underlying equity. Annual tax must be paid by the investor for his or her dividend income, either reinvested or received. Closed end funds and income trusts are also offering DRIPs.
Where there’s Muck, there’s Brass
DRIPs in general are a popular means of investment because it holds an advantage especially on dollar cost averaging. They usually involve plans that are sponsored by the company.