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Using dividend payments to automatically buy more shares.
Why It Matters
DRIP (Dividend Reinvestment Plan) turbocharges compounding. Instead of getting cash, your dividends automatically buy more shares, which then generate more dividends, which buy more shares. $10,000 in the S&P 500 since 1980 would be worth about $200,000 without reinvesting dividends - but over $1.1 million with dividends reinvested.
Key Points
- Most brokers offer free DRIP - just toggle it on in account settings
- Fractional shares: If your $50 dividend doesn't buy a full share, you get a partial share
- You still owe taxes on reinvested dividends (except in IRAs/401(k)s)
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What Is a Dividend?
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Common Questions
Using dividend payments to automatically buy more shares. DRIP (Dividend Reinvestment Plan) turbocharges compounding. Instead of getting cash, your dividends automatically buy more shares, which then generate more dividends, which buy more shares.
DRIP (Dividend Reinvestment Plan) turbocharges compounding. Instead of getting cash, your dividends automatically buy more shares, which then generate more dividends, which buy more shares. $10,000 in the S&P 500 since 1980 would be worth about $200,000 without reinvesting dividends - but over $1.1 million with dividends reinvested.
Most brokers offer free DRIP - just toggle it on in account settings
Fractional shares: If your $50 dividend doesn't buy a full share, you get a partial share
You still owe taxes on reinvested dividends (except in IRAs/401(k)s)