The process of reinvesting dividend earnings back into the stock of the company
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What is a DRIP (Dividend Reinvestment Plan)?
A DRIP (Dividend Reinvestment Plan) allows investors to reinvest any dividend earnings they receive back into the stock of the company paying out the dividend. DRIPs give stock market investors who own shares in a particular company the opportunity to receive dividend payments either in the form of additional shares of that company or as a discount towards future purchases of the company’s shares.
Dividend Reinvestment Plans are particularly popular among passive investors who don’t want to spend a lot of time studying the stock market and picking specific companies to buy or sell. They can enable such investors to grow their portfolio without necessarily exerting too much effort. However, DRIPs are very illiquid investments as they tie up capital for a longer duration than a normal equity investment. In addition, most plans don’t provide any tax advantage as the extra company stocks are treated as capital gains and taxed accordingly.
Dividend Payments
Companies that are listed on stock exchanges are publicly held companies and, as such, list millions of shareholders. Every shareholder is entitled to receive a share of the company’s profits that the company has not invested back into the business. Publicly listed companies distribute their excess profits back to shareholders using dividend payments.
A company that is paying out a high dividend could be doing so either because it is making large profits or because it is winding down its operations and preparing to shut down. In the latter case, the dividend payments are made using proceeds from asset sales. Therefore, a high dividend can’t be seen as a sure sign of a good stock investment.
Similarly, a company that is paying out a low dividend could be doing so either because it is making small profits (or losses) or because it is expanding operations. Therefore, a low dividend can’t be seen as a sure sign of a bad stock investment.
DRIP – Illustrative Example
An investor owns 1,000 shares of Apple Inc (NASDAQ:AAPL) priced at $200 per share. The investor is confident that Apple’s stock price will rise in the future and enter into a dividend reinvestment plan with the company. Apple declares a dividend of $8 per share or 4%. Since the investor owns 1,000 shares of Apple, he would’ve received $8,000 in cash if he was not enrolled in the dividend reinvestment plan. Since he is enrolled in the DRP, he receives an additional 40 (Cash Dividend Amount / Share Price = 8,000 / 200) shares of Apple.
Additional Resources
CFI offers the Financial Planning & Wealth Management Professional (FPWMP™)certification program for those looking to take their careers to the next level. To keep learning and advancing your career, the following CFI resources will be helpful:
FAQs
The drip can be very slight. A flow of one gallon per hour is enough to prevent freezing. Drafts will freeze pipes.
How many faucets to let drip? ›
You only need to let one faucet drip, but it's best for that faucet to be the one farthest away from where the water enters your home. The city of Portland and Consumer Reports both have some quick-and-easy tips on what to do if a pipe does burst or the water freezes.
What does it mean if someone says you have a drip? ›
“Drip” refers to someone's style as cool and fashionable.
It's typically used to describe clothes, shoes, and jewelry, but it can also refer to the way someone carries themself. If you see someone in a stylish outfit (or they just radiate confidence), you could compliment them by saying they have “drip.”
How to use drip in a sentence? ›
We heard the drip of the rain. the steady drip, drip, drip of the faucet Water fell from the ceiling in a steady drip. The doctor put the patient on a morphine drip to manage the pain. Don't invite that drip to your party!
Is it better to cover outside faucets or let them drip? ›
If you can't let an outdoor faucet drip to prevent freezing or turn the water supply off at the mains, then covering an outside faucet is your next course of action to help protect your waterlines in winter.
At what temperature should your pipes freeze? ›
Your pipes are at risk of freezing any time temperatures drop below 32°F. However, it's much more common for pipes to freeze when temperatures dip below 20°F. The longer the weather remains below freezing, the more likely it is your pipes can freeze if not properly protected and winterized.
How much water should you leave running to keep pipes from freezing? ›
Run cold water. All you need is a trickle of water to keep it flowing through the pipes consistently. According to MSU, a slow drip of water will fill up a gallon pitcher in about an hour, equaling about 2 cents per night to drip one faucet. That's much cheaper than broken pipes and water damage.
Should I drip both hot and cold water? ›
Hot water comes through a separate pipe and is less likely to freeze, so a cold water drip is recommended. If your water pipes for both hot and cold water are exposed, or your power is out along with your water heater, drip both hot and cold water to prevent either line from freezing.
At what temperature should you drip outside faucets? ›
In these temperatures, Jake explains that you should drip your faucet if it is connected to a pipe. 'When the temperature falls below freezing, and a water supply is exposed to these freezing temperatures, the water can freeze in the pipe.
What is the slang word for cool now? ›
Dope - Cool or awesome. Extra - Over-the-top, extreme. Fit - Short for outfit. Fire - Hot, trendy, amazing, or on point (formerly "straight fire")
During previous generations, drip was slang for “an unattractive, boring, or colorless person.” Now, if someone mentions your drip, it's actually a good thing. Drip refers to your look or style, particularly when it's considered extremely fashionable or sexy (kind of like a newer version of swag).
Why is drip called drip? ›
The word “drip” refers to the slang “ice”, which refers to diamonds in jewelry. If you have drip, it means you have a lot of diamonds, or “ice”. If one is dripping, it means they're rich, as evident by their jewelry.
What does drip mean in texting? ›
If you have the drip, it means you have swagger, especially in how you look. You're hot. You're cool. You're on point. You've got the sauce.
Is drip a compliment? ›
Drip is used to acknowledge and celebrate an individual's fashionable and stylish appearance. It can be used to describe someone's outfit, accessories, overall look, or their ability to effortlessly stand out in a crowd.
What is drip Urban Dictionary? ›
Urban dictionary's “dripping” definition: When something or someone is really cool, or has so much swag to it.
Will draining pipes keep them from freezing? ›
The pipes are freeze-protected if they are empty of water during a freeze. The water will slowly drain out from the lowest faucets which will likely be in your basem*nt near a laundry washer-dryer area or into the bathtub in a slab house without a basem*nt.
How to thaw frozen pipes without bursting? ›
Manually thaw: Begin the thawing process at the most vulnerable places (near faucets). By targeting these areas first, your pipes will be less likely to burst. To do so, gently apply heat to the frozen areas. A blow dryer is a good option (use caution, go slowly, and don't use an open flame).
How much does it cost to leave a faucet dripping? ›
The average leaky faucet produces around ten drips every minute, wasting around one gallon of water per day. It costs you about a dollar per month. But more significant leaks, like faucets that leak 120 drops per minute, waste more than 11 gallons per day and cost you $6 every month. And that's just a single leak.
