DRIP (Dividend Reinvestment Plan)
Dividends that buy more shares automatically - compounding ownership over time instead of taking the cash.
- Term
- Dividend Reinvestment Plan (DRIP)
- Does
- Auto-reinvests dividends into shares
- Benefit
- Compounding ownership over time
- Often
- Commission-free, fractional shares
Forms & parts of speech
Definition in plain terms
A DRIP, or dividend reinvestment plan, is an arrangement that automatically takes the cash dividends a shareholder receives and uses them to buy more shares of the same company, instead of paying the dividend out as cash.
Many companies and brokerages offer DRIPs, often without commissions and frequently allowing the purchase of fractional shares so every cent of the dividend is reinvested.
The appeal is compounding: each reinvested dividend buys more shares, which then generate their own dividends, which buy still more shares.
Over long periods, this compounding can meaningfully increase the size of a position and the total return, since dividends are continuously put back to work rather than sitting as cash or being spent.
Why it matters to growth leaders
A DRIP is an investor's tool, and its direct tie to a growth leader's work is modest - but it embodies a principle central to growth thinking: compounding.
A DRIP works because it reinvests returns to generate further returns, the same logic behind compounding growth in a business - reinvesting cash flow into acquisition and retention that produce more cash flow.
For a growth leader, the DRIP is a clean illustration of why reinvestment beats taking cash out when the returns are strong
which is exactly the argument for funding growth in a company with strong unit economics rather than returning capital. Understanding the DRIP rounds out the dividend picture and reinforces, by analogy, the core growth-finance insight: capital put back to work compounds
and the decision to reinvest versus distribute is the same decision a growth-stage company faces with its own cash.
Through a DRIP, each dividend buys additional shares, which then generate their own dividends, which buy still more shares, so the position grows on itself over time without the investor doing anything.
The growth leader sees the analogy to the business: a company with strong unit economics that reinvests its cash flow into acquisition and retention generates more cash flow, which funds more growth - the same compounding logic that makes a DRIP powerful.
This clarifies, by analogy, why reinvestment beats taking cash out when returns are strong, and it's exactly the argument for funding growth in a company whose growth investments pay back well rather than returning capital to shareholders.
Understanding the DRIP rounds out the dividend picture and reinforces the central growth-finance insight the leader applies daily: capital put back to work compounds, and the reinvest-versus-distribute decision is the same one a growth-stage company faces with its own cash.
and missing the analogy to reinvesting business cash flow for compounding growth.
Synonyms & antonyms
Synonyms
Antonyms
Origin & history
Dividend reinvestment plans let shareholders compound returns by automatically converting cash dividends into additional shares; the mechanism is a practical embodiment of compounding - reinvested returns generating further returns over time.
Etymology: source.
Usage trends
Search interest for this term over the last five years:
Common questions
- What is a DRIP?
- A dividend reinvestment plan that automatically uses a shareholder's cash dividends to buy additional shares of the same company, often commission-free — compounding ownership over time instead of paying out cash.
- How does a DRIP help an investor?
- Through compounding — each reinvested dividend buys more shares, which generate their own dividends, which buy still more shares, meaningfully increasing a position and total return over long periods.
- Are reinvested dividends still taxable?
- In many jurisdictions, yes — dividends are typically taxable income even when automatically reinvested through a DRIP rather than taken as cash.
Related tools & calculators
Resources & people to follow
- referenceWikipedia — dividend reinvestment plan
- referenceCorporate-finance and growth-finance practice
- referenceRGM analysis — a DRIP embodies compounding; it mirrors reinvesting business cash flow for growth, the same reinvest-versus-distribute decision a growth company faces
Curated, non-competitor resources verified per term.
Related training
Disciplines
Areas of marketing where drip (dividend reinvestment plan) is a core concern: