DRIP (Dividend Reinvestment Plan)
A DRIP (dividend reinvestment plan) automatically uses cash dividends to buy more shares of the same investment, instead of paying the dividend out as cash.
Why it matters
- Reinvesting dividends compounds returns over time — each reinvested dividend can itself generate future dividends.
- Many brokerages offer DRIP as a free, automatic option for eligible stocks and ETFs.
- DRIP dividends are still generally taxable in non-registered accounts, even though you never receive the cash.
Simple example
- An investor holding a dividend ETF with DRIP enabled automatically buys a small number of additional shares (or fractional shares) each time a dividend is paid.
- Over 20-30 years, reinvested dividends can meaningfully increase total returns compared with taking dividends as cash and spending them.