Dividend Reinvestment Plan - DRIP

A DRIP is just what it sounds like. You own shares of a company that, historically, has grown at 7%, and it carries a 3% dividend. Instead of taking that dividend in cash, you simply pay the taxes on the dividend as if they were distributed to you, but instead with no commission, you use those dividends to quarterly buy more shares of the company.

After a couple decades, you will end up owning almost double the shares in the company than you would have had you taken the dividends in cash. This is your DRIP...a 100% repatriation of dividends into buying more shares of the company.

Some DRIPs split the difference 50/50; others keep a third, mainly to pay cash taxes, and then reinvest two-thirds so that share ownership increases lovingly along the way.