What Advantages to the Corporation & to the Stockholder Do Dividend Reinvestment Plans Offer?

Dividend reinvestment plans are set up by corporations to allow shareholders to accumulate shares of company stock. These plans are referred to as DRIPs and have benefits for the corporations as well as shareholders.

Shareholder Benefit

The biggest benefit to shareholders from a dividend reinvestment program is the ability to accumulate shares over time. DRIPs allow account holders to add as little as $50 to $100 at any time.

Function

A shareholder must open a DRIP account through the corporation or the account servicer to participate in the plan. Shares are purchased in the plan with little or no commissions and often at a discount to current market price.

Automatic Accumulation

Instead of receiving dividends as cash, participants in DRIPs have their distributions automatically invested in additional shares of stock. Plan members will automatically accumulate additional shares even if they do not send in additional contributions.

Corporate Benefit

The corporation benefits from a DRIP with a steady stream of low-cost capital. The company can use the money paid to purchase shares of stock to fund growth and investment in the company.

Consideration

Dividend reinvestment plans also build shareholder loyalty to the corporation. DRIP members are in for the long term and believe in the future prospects of the company.

References

• BNY Mellon Shareholder Services
• ComputerShare Investor Services
• Pros and Cons of DRIPs