What are the benefits in participating in a dividend reinvestment plan (DRIP)?

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readerofbooks eNotes educator| Certified Educator

This is a good question. A dividend is an amount of money that a company gives to its shareholders several times a year. In other words, instead of a company holding too much cash, they give the money that they have made to the shareholders.

If you reinvest this dividend back into the stock, then in the end you will have more stocks. So, a dividend gives you two stream of finances. First, you will make money on the dividend itself. Second, you will make money if the stock goes up.

In light of this, the benefit is that you can make money from two possible sources, and dividend paying stocks also make for a slightly safer investment as you get money back. Finally, if you do not sell the stock, your dividend payment is only charged at 15% for tax purposes.