Remember: Rewards come in action, not in discussion.” — Tony Robbins

There’s more to the beautiful world of dividends, and it only gets better. There are also DRIPs, which are, quite simply, an acronym for Dividend Re-Investment Plans. It is also my favourite series of words next to compound interest. This section is much more self-explanatory. Signing up for DRIPs is something that you do with your broker (the person who handles the transactions between you and the company you buy stocks from). All DRIP’s do is take the money you’ve made from your dividends and automatically buy more stocks with them.

Uh-oh more math, but hold on tight you’re almost through the article. For the purpose of simplifying the math we’ll assume a situation where price stocks stay the same. So you’ve had these shares for 3 months and now it is payday. The company gives you $10. Usually this would just be added to your cash in your investing portfolio. With DRIPs your broker automatically takes those $10 and buys another share. This means after 3 months you would have 101 shares.

The next quarter when you get paid dividends you will be paid $0.10 per share for 101 shares. $0.10 times 101 shares is $10.10. The $10 would go to buying another share bringing up your total to 102. Next time they pay you, the payout will be $10.20. That buys you another share. It also brings your left overs to $0.30, $0.10 from last quarter and $0.20 from this quarter. You continue to add up all those cents until there is enough to buy another share. This process continues to happen until you finally decide to sell and collect the value of all your shares.

Please keep in mind that if you have a good company when you sell (in the long-run) the shares will be worth more than you bought them for. Since dividends are a percent of the total value they will increase accordingly.

Published by the Queen’s Initiative for Financial Literacy

Article Author: Mackenzie Ferreira, Senior Analyst




One clap, two clap, three clap, forty?

By clapping more or less, you can signal to us which stories really stand out.