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Many publicly held companies allow shareholders to reinvest dividends in company stock or buy additional shares through dividend reinvestment plans, or DRIPs.
Enrolling in a DRIP enables you to build your investment gradually, taking advantage of dollar cost averaging and usually paying only a minimal transaction fee for each purchase.
Many DRIPs will also buy back shares at any time you want to sell, in most cases for a minimal sales charge.
One potential drawback of purchasing through a DRIP is that you accumulate shares at different prices over time, making it more difficult to determine your cost basis - especially if you want to sell some but not all of your holding.
- Browse Related Terms: Capital gains distribution, Compounding, Direct investment, Direct purchase plan (DPP), Distribution, dividend, Dividend reinvestment plan (DRIP), dollar cost averaging, Fractional share, Growth, January Effect, reinvestment, total return, Total return index