Dividend reinvestment plans or DRIPs are plans offered by some of the publicly traded companies. Under dividend reinvestment plans, company shareholders are allowed to reinvest the dividends in the company stock.
Dividend reinvestment plans benefits both the company and the shareholders since the company is able to increase its net-worth and hence the funds available at its disposal while shareholders get the company stocks without having to pay the brokerage commissions. However, shares are repurchased at the time dividends are paid may result in the purchase at a sub-optimal time.
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