Educational purposes only. This content does not constitute investment advice. Read our disclaimer
StockCram is not a broker-dealer, investment adviser, or financial institution. All content is for educational and informational purposes only and should not be construed as personalized investment advice. Consult a qualified financial professional before making investment decisions. Past performance does not guarantee future results.Simple Definition
Dividend Reinvestment Plan. A program that automatically uses dividend payments to buy more shares of the same stock.
Why It Matters
DRIP turns passive income into compounding growth. Instead of receiving cash dividends, they automatically buy more shares — which then generate more dividends. Over decades, this snowball effect is massive. $10,000 invested in the S&P 500 in 1980 would be worth roughly $200,000 without DRIP, but over $1.1 million with dividends reinvested.
Key Points
- Most brokers offer DRIP for free — just toggle it on in your account settings
- Fractional shares mean even small dividends get fully reinvested
- You still owe taxes on reinvested dividends in taxable accounts (not in IRAs/401(k)s)
Learn More
What Is a Dividend?
Get a complete explanation with examples, key takeaways, and a quiz to test your knowledge.
Related Terms
Common Questions
Dividend Reinvestment Plan. A program that automatically uses dividend payments to buy more shares of the same stock. DRIP turns passive income into compounding growth. Instead of receiving cash dividends, they automatically buy more shares — which then generate more dividends.
DRIP turns passive income into compounding growth. Instead of receiving cash dividends, they automatically buy more shares — which then generate more dividends. Over decades, this snowball effect is massive. $10,000 invested in the S&P 500 in 1980 would be worth roughly $200,000 without DRIP, but over $1.1 million with dividends reinvested.
Most brokers offer DRIP for free — just toggle it on in your account settings
Fractional shares mean even small dividends get fully reinvested
You still owe taxes on reinvested dividends in taxable accounts (not in IRAs/401(k)s)