How to Buy DRIP Stock

How to Buy DRIP Stock

So many people are looking for that magic stock that not only has a high earnings potential, but also pay them some dividends. This short guide will explain how to buy DRIP Stocks so that you can get make some smart investment choices.

What is DRIP Stock

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DRIP stands for dividend reinvestment plan and it functions a little bit differently from your standard stock. DRIP is not only an acronym, but also an explanation of how it works. Each time you receive a dividend, instead of receiving cash, it goes to investing in the company giving you another share of company stock. This helps the company grow little by little.

Why is it a Good Idea?

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Unless you have a large amount of stock in a massive company, chances are that the dividends that you receive are pretty insignificant. As nice as it is to have cash in hand, this is a nice way to steadily grow your investment without any additional cost to you. If the company does eventually strike it big, you will be holding a larger percentage of stock when that happens making it far more valuable than a dividend would have been.

First Steps

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Not all companies offer this option so the first thing you should do is search for a list of companies that offer DRIP stock. After this, do your basic research. What is the current health of the company and the market it is in? How have earnings been and can you identify potential? Choose investments that match your level of risk/reward and proceed from there.

How to Purchase DRIP Stock

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After this, you have a variety of options of how you would buy the stock. Before you can enroll in a DRIP program, you usually have to own at least one share of stock in the company. Usually the best options are to purchase through an online brokerage account or a transfer agent. Just pay attention to fees as well as promotions. If your timing is right, you can pay a bare minimum of fees.

Next Move

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Even if you choose a company with a DRIP program, it is not automatic as you are given choices about what you what to do with the dividend. After you have purchased stock, then you need to enroll in the DRIP plan. Again you can do this through a broker or sometimes directly with the company depending on its policies.

A Solid Investment Plan

If you have done your research and have a little bit of luck, then you can just get back and periodically keep track of what is going on with your stocks. These days, there are multitude of apps that you can use that will give you updates about your stocks as well as important company news. If it is fairly unestablished company, you will want to pay a little more attention to these as they tend to be more volatile. Good luck!

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