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1. A dividend re-investment program is one in which an investor, through their broker or transfer agent, uses dividends to automatically purchase shares of companies that are issuing the dividend.
2. Typically, DRIPs are executed commission-free. They may allow partial share purchases, or may require the investor accumulate enough to purchase a full share.
3. In some instances, DRIPs allow investors to buy shares at a discount to what they are trading at, or allow investors to add additional cash deposits to make commission-free trades. These instances are typically in which the DRIPs is being managed through a transfer agent via the DRS; in such a capacity, the individual is buying the stock directly from the corporation issuing the dividend, who in turn can use the cash to finance its future operations — and thus may be inclined to offer more amenable terms.
4. As noted in the previous point, DRIPs can be purchased either via a transfer agent (i.e. DRS) or via a broker. A broker may be more convenient, though a transfer agent may be capable of offering other benefits.
5. In DRIP programs, stocks are automatically purchased the day after the dividend is issued. As such, the investors/trader does not have precise control over the stock price. Because of this, investors should use DRIP programs for stocks that they feel comfortable investing in for the long-term, and are willing to tolerate a lack of precision in day to day or even month to month prices.