Legal Definitions - brokerage-run dividend-reinvestment plan

A brokerage-run dividend-reinvestment plan is a program that allows investors to reinvest their dividends and additional voluntary payments into shares of a company's common stock. This is usually done without any sales charge and sometimes at a discount from the stock's market price. The investor never receives the cash, but it is still treated as income to the investor. An investor may also be allowed to make optional cash purchases of additional stock.

There are three types of dividend-reinvestment plans:

• Brokerage-run dividend-reinvestment plan: A formal or informal program managed by a brokerage and allowing shareholders to reinvest dividends in a portfolio, often at no cost.
• Company-run dividend-reinvestment plan: A program operated by a corporation for its own shareholders. Company-run plans may offer additional features such as IRAs.
• Transfer-agent-run dividend-reinvestment plan: A program administered by a financial institution for several companies. An investor can participate in more than one DRIP program simultaneously and also make additional cash investments in multiple companies.

For example, if an investor owns 100 shares of XYZ company and the company pays a dividend of $1 per share, the investor would receive $100 in cash. However, if the investor participates in a dividend-reinvestment plan, the $100 would be used to purchase additional shares of XYZ company's stock. This allows the investor to increase their ownership in the company without having to pay any additional fees.