June 30, 2015
Appropriately enough, investors may notice a slow trickle in earnings from "dividend reinvestment plans" (DRIPs). But these investments may end up providing a steady stream of income over the long run.
The concept is relatively simple. More than 1,000 companies and closed-end mutual funds around the country offer DRIPs to their shareholders. These programs enable shareholders to purchase stock directly from the company by automatically reinvesting dividends in additional shares. Many DRIPs also allow you to voluntarily make cash payments directly into the plan to buy even more shares.
Here are some of the main attractions of DRIPs.
But that's not to say that investing in DRIPs is without drawbacks. There is a growing trend within the industry to charge a small fee for acquiring shares. Minimum amounts for purchases may be required. Also, the dividends that are reinvested are treated as taxable income, even though you don't currently receive any cash.
Consider all of the implications of investments in DRIPs before including DRIPs in your portfolio.
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