Corporate actions
Dividend reinvestment
Also called DRIP
Automatically using dividends to buy more shares instead of taking the cash.
How it works
Reinvestment is how income turns into compounding. Over long horizons, reinvested dividends have historically accounted for a very large share of total equity returns.
Many brokers and companies offer it automatically, sometimes at a small discount and without commission.
Where it misleads people
Each reinvestment is a new purchase with its own cost basis and date. Failing to record them means overstating your eventual gain and paying tax twice on the same money.
Related terms
- DividendA cash payment a company makes to its shareholders out of its profits.
- Cost basisWhat you actually paid for a holding, including fees — the number every gain or loss is measured from.
- CompoundingEarning returns on the returns you already earned, so growth accelerates the longer you leave it alone.
- Tax lotOne purchase of a security, tracked separately with its own date and price.
- Total returnThe full return from an investment: price change plus every dividend or interest payment received.
More in Corporate actions
- Dividend yield
- Dividend cut
- Earnings announcement
- Dividend cover
- Earnings revision
- Dilution
- Earnings surprise
- Delisting
All 26 Corporate actions terms · The full glossary, 433 terms
Educational reference only. Nothing here is investment advice or a recommendation to buy or sell anything, and tax treatment depends on your own circumstances and the country you are in.