Dividend reinvestment (DRIP)

DRIP in plain English

DRIP stands for dividend reinvestment plan. Instead of keeping a dividend as spending money, you use it to buy more shares. Some brokers offer automatic reinvestment; others require a manual purchase.

More shares can earn more future dividends if payments continue. Repeating that cycle is compounding: future returns can be earned on earlier returns.

Take the cash or reinvest?

Taking cash may suit someone who needs income now. Reinvesting may suit a longer-term goal, but locks more money into investments whose value can fall.

You do not have to put the cash back into the same stock. Reinvesting elsewhere may help rebalance an overly concentrated portfolio. The right choice depends on your circumstances, not a universal rule.

Check fees, share rules and tax

Broker fees and currency charges can eat into small reinvestments. If a broker does not support fractional shares, spare cash may remain uninvested.

Reinvested dividends can still be taxable outside a tax-sheltered account. Choosing to buy shares with the cash does not automatically remove the original dividend tax liability. Foreign withholding can also reduce the cash available to reinvest.

• Check the reinvestment fee and currency charge.
• Confirm whether fractional shares are supported.
• Keep dividend and purchase records separately.
• Model dividend cuts and falling prices, not just growth.

A projection is not a prediction

A calculator shows what could happen under the assumptions you enter. In real life, share prices, dividends, taxes and fees change.

Try several scenarios rather than trusting a single smooth growth line. Investing Dividend Tracker helps you track holdings you already own; it does not buy shares or connect to your broker.