Dividend reinvestment plan in the context of "Ownership equity"

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⭐ Core Definition: Dividend reinvestment plan

A dividend reinvestment program or dividend reinvestment plan (DRIP) is an equity investment option offered directly from the underlying company. The investor does not receive dividends directly as cash; instead, the investor's dividends are directly reinvested in the underlying equity. The investor must still pay tax annually on his or her dividend income, whether it is received as cash or reinvested.

DRIPs allow the investment return from dividends to be immediately invested for the purpose of price appreciation and compounding, without incurring brokerage fees or waiting to accumulate enough cash for a full share of stock. Some DRIPs are free of charge for participants, while others do charge fees and/or proportional commissions.

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Dividend reinvestment plan in the context of Dividend

A dividend is the distribution of profits by a corporation to its shareholders. When a corporation earns a profit or surplus, it is able to pay a portion of the profit as a dividend to shareholders. Any amount not distributed is taken to be re-invested in the business (called retained earnings). The current year's profit as well as the retained earnings of previous years are available for distribution; a corporation is usually prohibited from paying a dividend out of its capital. Distribution to shareholders may be in cash (usually by bank transfer) or, if the corporation has a dividend reinvestment plan, the amount can be paid by the issue of further shares or by share repurchase. In some cases, the distribution may be of assets.

The dividend received by a shareholder is treated as the income of the shareholder and may be subject to income tax (see dividend tax). The tax treatment of this income varies considerably between jurisdictions. The corporation does not receive a tax deduction for the dividends it pays.

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LINKED FROM (PARENTS)
← Dividend ← Dividends
LINKS TO (CHILDREN)
Ownership equity → Dividend → Tax → Compound interest → Cash →