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What
Are DRIPs?
DRIP
stand for Dividend ReInvestment Plan. DRIPs are set up by publicly
traded companies to help small investors buy their stock. The
investor's dividends are automatically reinvested to purchase additional
shares of stock. The investor can also send a check (or Optional
Payment) to the DRIP--which is then used to purchase more shares of
stock. Typically, no
fees or commissions are charged for purchasing shares.
Many plans allow the investor to send checks as small as $10! Some
plans offer other benefits, such as discounted purchase price and
automatic monthly investment (withdrawal from a checking account).
Why
would a company sponsor a DRIP for its stock:
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To
draw small investors.
Small investors are more loyal than large firms. Having them
helps to improve stock price stability.
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To
generate short-term capital. Companies
can borrow against DRIP investment money for a short-term to
generate capital without going through the hassle of getting a bank
loan.
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To
improve the company's business.
Investors are also loyal customers.
The most common name
for these investment plans is DRIP, but some companies use other
names. They include: DRP (Dividend Reinvestment Plan),
Direct Stock Purchase Plan, Investor Service Program, DPP (Direct
Purchase Plan), Shareowner Investment Plan, Buy Direct, Shareowner
Direct. In all cases, the plans are similar.
More in-depth
information about DRIPs is located in the DRIP
Info area.
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