When most people hear the phrase dividend reinvestment, they will often associate it with dividend reinvestment plans (DRIPs). Many companies offer DRIPs through their transfer agent. Instead of sending dividend checks to shareholders enrolled in the company's DRIP, the company reinvests those dividends by purchasing additional shares (or fractional shares) in the shareholder's name. Most plans will reinvest a shareholder's dividends without a fee or commission. Some brokerages offer similar plans.
It is important to note that you can reinvest dividends without participating in a formal DRIP plan. Personally I have chosen not to participate in a formal DRIP plan. I prefer the flexibility of determining where my dividends are invested. I add them to my normal monthly investment, thus I do not incur any additional commissions.
Do you reinvest dividends through a formal program, independently or not at all?
Full Disclosure: No position in the aforementioned securities.
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