Financial Markets Book Financial Markets For The Rest Of Us
An Easy Guide To Money, Bonds, Futures, Stocks, Options, And Mutual Funds
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by Robert Hashemian

Page 256

this strategy does not help the investor with bargain hunting, it does ensure that investor will not overpay for the stocks in the long run.

DRIP - Short for Dividend Re-Investment Plan, a DRIP is a method of investment in dividend paying companies in which the dividend payments go into buying more shares of the companies' stocks. This plan is normally sponsored by the companies with the dividend-paying stocks themselves, allowing participants to buy shares in the company for a very small fee. As dividends are paid out on those shares, the plan automatically uses the proceeds to buy more shares of the company's stock and promptly adds them to the DRIP account at no cost. If round number of shares cannot be purchased, fractional shares are added to the account. DRIPs are very effective due to compounding. As more shares are added to the DRIP account using the dividend proceeds, more dividend is paid out the next time around, and therefore more shares are added to the account. As this process iterates, the account continues to have an exponential growth in the number of shares. To start a DRIP account, an investor is normally required to have at least one share of the company's stock in advance (which can be purchased through a broker). Subsequent investments are made by sending a payment to the company, many of which charge little or no commission to buy the stock for the investor. The drawback is that the investor has no control over the price paid per share. When the company receives payment from the investor or is about to convert dividend payouts to stocks, it simply buys the stock at market price. Many conservative investors use DRIPs and contribute to them regularly due to their simplicity, effectiveness, and inexpensive trades. You can find out about a company's DRIP rules by directly contacting its investor relations department.Many blue chip companies including GE and Home Depot have DRIP programs.


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    Table of Contents Copyright and Disclaimer Foreword Money
    Bonds Futures Stocks Options
    Mutual Funds Retirement Final Words Appendix A

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