Dividend reinvestment plans
he DRP system is a system that allows for shareholders and investors alike to directly purchase stocks on a regular basis from the respective company, usually through a third party such as a transfer agent, in high or small volumes. Already paid dividends are used to reinvested in additional stock, therefore the derivative of the system’s “Dividend Reinvestment Plan” name.
The specifications of each plan dictate the obligation to either reinvest the dividend or not, and only a small amount of cash is required to initiate the process.
In fact, in most cases it is sufficient to own a minimum of one single share to be able to partake in a DRP. These plans are an efficient way for Fools to put their dividends to much better use, instead of either spending them or leaving them inactive in a money market account.
Furthermore, most DRPs do not even charge to have the dividends reinvested, while many companies offer the option to investors to buy extra shares for a small amount, if indeed at all.
Stock Purchase Plans (SPPs), often known as Optional Cash Purchase Plans (OCPs) enable any investor to put in cash ranging from $10 to $50 to buy stock at a lower rate than the market value, usually a discount that amounts to around one to ten percent. DRPs effectively put an obligation on investors to frequently purchase stock and to guard it.
It encourages a more deep-rooted financial vision from investors through the consistent investment of a measured amount of money which does not necessarily have to be a huge, as long as it is indeed consistent.
These consistent investments are encouraged to be made by companies through this system of DRPs, which can be taken through the direct debiting from the bank account of shareholders and investors.
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