# Dividend reinvestment plan (DRIP)

> A program that automatically uses an investor's cash dividends to buy more shares of the same stock, often including fractional shares.

Source: https://www.quantisnow.com/glossary/drip
Topic: Glossary / Dividends
Also known as: DRIP, dividend reinvestment, DRP
Last updated: 2026-10-27

A dividend reinvestment plan (DRIP) is an arrangement in which a shareholder's cash [dividends](https://www.quantisnow.com/glossary/dividend) are automatically used to purchase additional shares of the same company instead of being paid out as cash. DRIPs typically buy fractional shares, so every dollar is reinvested.

## How it works

There are two main types:

- **Brokerage DRIPs:** most brokers let clients switch on reinvestment for eligible holdings. The broker buys shares in the open market on or shortly after the [payment date](https://www.quantisnow.com/glossary/payment-date), usually without commission.
- **Company-sponsored DRIPs:** run by the company through its transfer agent. Some issue new shares directly from the company, sometimes at a small discount to market, and may allow optional cash purchases.

Reinvested dividends are still taxable in the year they are paid, just as if the investor had received cash. Each reinvestment creates a new tax lot with its own cost basis, which matters when shares are later sold.

## Why it matters for traders

For long-term holders, reinvestment compounds returns: more shares produce more dividends, which buy more shares. The trade-off is less control over timing and price, since reinvestment happens regardless of valuation. For companies, a DRIP that issues new shares raises equity capital and creates modest [dilution](https://www.quantisnow.com/glossary/dilution); some REITs and utilities use discounted DRIPs as a steady funding source. Traders who actively manage positions often turn DRIP off to avoid small odd lots and complicated cost basis records.

## Example

An investor owns 500 shares of Harbor Freightline (ticker HRBF), which pays a $0.33 quarterly dividend. On the payment date the dividend totals $165. With HRBF at $30, the DRIP buys 5.5 shares, raising the position to 505.5 shares. Next quarter's dividend is paid on 505.5 shares, or about $166.82.

## FAQ

### Are reinvested dividends taxed?

Yes. In the US, dividends reinvested through a DRIP are taxable in the year paid, the same as cash dividends.

### Can I turn off dividend reinvestment?

Yes. Brokers and transfer agents let you switch between reinvesting and receiving cash.

## Related terms

- [Dividend](https://www.quantisnow.com/glossary/dividend.md): A distribution of a company's profits or cash to shareholders, usually paid in cash on a regular schedule after being declared by the board.
- [Payment date](https://www.quantisnow.com/glossary/payment-date.md): The date a company actually pays a declared dividend to eligible shareholders, usually days or weeks after the record date.
- [Dividend yield](https://www.quantisnow.com/glossary/dividend-yield.md): A stock's annual dividend per share divided by its current share price, expressed as a percentage of the price.
- [Dilution](https://www.quantisnow.com/glossary/dilution.md): The reduction in existing shareholders' ownership percentage and per-share claims on earnings when a company issues new shares.

## On Quantisnow

- [Dividend tracker](https://www.quantisnow.com/dividends)
- [Dividend dates explained](https://www.quantisnow.com/guides/dividend-dates-explained)
- [Stock average cost calculator](https://www.quantisnow.com/tools/average-cost-calculator)
- [Compound growth calculator](https://www.quantisnow.com/tools/compound-interest-calculator)
- [Dollar-cost averaging calculator](https://www.quantisnow.com/tools/dca-calculator)
- [Dividend yield and DRIP calculator](https://www.quantisnow.com/tools/dividend-calculator)