DRIP investing - Dividend Reinvestment Plan

What is DRIP investing?

DRIP is an acronym for "Dividend ReInvestment Plan".  A dividend reinvestment plan allows shareholders to reinvest their dividends back into the company without incurring any commissions.

If you are a shareholder of a company, you can research if your company offers a dividend reinvestment plan.  Most companies would have a page on their website for their shareholders to sign up.

To maximize your long-term profits, you would want to open an IRA account and set up the dividend reinvestment plan in that account.  Regular dividend payments are taxable.  However, if you set up the dividend reinvestment plan in your IRA, then it would be tax-free.  IRAs are tax-exempt from Federal taxes and depending on which State you reside, you might not need to pay State income tax either on the dividend income.

The dividend reinvestment plan can be use like a savings plans for your retirement.  It can grow tax-free.  The DRIP automatically reinvests your dividend payments back into the account to accumulate more shares.  In addition to tax-free dividend growth, the capital gains are also tax-free in the same manner as the dividends.

Here are some of the most profitable long-term dividend reinvestment plans (DRIPs).  I compiled a list of links to those companies's DRIP investing webpage where you can find details on how to enroll.

Ticker Description Industry DRIP Investing
KO Coca-Cola Co Beverages (Nonalcoholic) Link to DRIP
DIS Disney (Walt) Co Broadcasting & Cable TV Link to DRIP
T AT&T Inc Communications Services Link to DRIP
IBM Intl Business Machines Corp Computer Services Link to DRIP
KFT Kraft Foods'A' Food Processing Link to DRIP
JNJ Johnson & Johnson Major Drugs Link to DRIP
PFE Pfizer, Inc Major Drugs Link to DRIP
PG Procter & Gamble Personal & Household Prods. Link to DRIP


Drip Investing offers a few advantages:

1. You avoid paying commissions.

2. It forces you put aside money for the future.

3. When set up in IRA account, the dividends and capital gains are tax free.

4. The power of tax free compounding allows the portfolio to grow at a faster rate.


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Florisa Martinez said:

I am a newbie in investing and illiterate for business language....This topic helps me a lot. Thank you.



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