A dividend re-investment plan (DRIP) is a means of allowing shareholders to cheaply reinvest their dividends in the purchase of more shares in a company. The operator of the DRIP (typically the company's registrar) pools the cash dividends payable to shareholders who have chosen to use the DRIP, purchases shares in the market and allocates them to the shareholders.
From the point of view of a shareholder it is similar to receiving a scrip dividend, but there are important differences:
- A DRIP does not retain cash within the company.
- There are (small) dealing costs.
- The number of shares a shareholder gets depends on the price on the day on which the DRIP operator purchases the shares.