Dividend Reinvestment Plan (DRIP)

A dividend reinvestment plan, commonly called a DRIP, automatically uses cash dividends to purchase additional shares instead of paying the dividend out as cash.

Reviewed September 2026

How a DRIP works

When a dividend is paid, the amount that would otherwise arrive as cash is used to buy more shares. Depending on the program or brokerage, this can include fractional shares, which allows the full dividend amount to stay invested.

Simple example

You own 100 shares and receive a $50 cash dividend. With dividend reinvestment turned on, the $50 is used to buy additional shares. Those new shares can then earn future dividends, creating a compounding effect over time.

Company DRIP vs. brokerage reinvestment

Some companies have formal dividend reinvestment plans. Many brokerages also offer automatic dividend reinvestment for eligible securities. Fees, eligibility, purchase timing and fractional-share rules can differ.

Taxes still matter

Reinvesting a dividend does not automatically make it tax-free. In a taxable account, a dividend may still be taxable even when it is immediately reinvested. Tax treatment depends on the account, jurisdiction and type of distribution.

When it may not fit

Automatic reinvestment can be convenient for long-term investors, but someone who needs portfolio income or wants to control where new money is invested may prefer to receive dividends as cash.