What is DRIP?

What is DRIP?

What is DRIP? Let's start with an experiment.

Go into your kitchen and place a large drinking glass under your faucet. Set the tap to drip at as slow a pace as you can manage. Check back in a few hours, and your large glass will be overflowing. It shows - DRIP works.

The example above is exactly the same idea behind DRIP investment - getting rich slowly but surely. DRIP will allow shareholders of a publicly-traded company to invest the stock dividends into additional shares (or fractional shares) in the shareholder's name. Because the program permits individual investors to invest with small amount of money while bypassing brokerage or commission fees, investors can accumulate shares slowly over a period of time, and reap the benefits of capital gains and compound investment.


There are two other concepts you should know about while investing in DRIP.

Optional Cash Purchase (OCP), also sometimes known as Share Purchase Plans (SPP), allows DRIP participants to purchase additional company shares through monthly, quarterly or annually payments. The frequency of payments, and minimum/maximum amount of investment allowed are various depending on the companies involved. But this option offers investors a great advantage to increase the value of their DRIP portfolio for free, since most of the companies do not charge fees for this service. Instead of buying shares through your brokerage with commissions, you send in any dollar amount that is allowed (sometimes as little as $25) to buy fractional shares of company for free.

Direct Stock Purchase (DSP) is the plan which permits investors to purchase company shares directly from company itself, or its transfer agent. Companies or transfer agents administer the DSP program may charge some fees for participation (but not always). However, this is a great way to get started in DRIP as you may find out own your first share and star the DRIP investment may not always be easy. (More on this topic in section “Owning Your First Share"). Another piece of bad news for Canadian DRIP lover, the DSP is currently only existed among US companies. No Canadian companies offer DSP – so far.

Getting Rich Slowly - Why you should choose DRIP?

DRIP is not a getting-rich-fast approach. It is rather a slowly but surely way to investing small but steady, regular, build a strong financial position in the long-term.

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