Legal Definitions - DRP

DRP

DRP stands for Dividend-Reinvestment Plan. It is a program offered by some companies that allows shareholders to automatically reinvest their dividends into additional shares of the company's stock.

For example, let's say you own 100 shares of XYZ Company and they pay a quarterly dividend of $0.50 per share. With a DRP, instead of receiving a cash payment of $50, you can choose to reinvest that money into additional shares of XYZ Company. This means you would receive 1.67 additional shares of XYZ Company (assuming the stock price is $30 per share).

Another example is if you own 500 shares of ABC Company and they offer a DRP. If the stock price is $50 per share and they pay a quarterly dividend of $1 per share, you could reinvest your dividends to purchase an additional 20 shares of ABC Company each quarter.

A DRP is a way for shareholders to reinvest their dividends into additional shares of a company's stock. This can be a good option for investors who want to increase their holdings in a particular company without having to buy more shares on their own. By reinvesting their dividends, shareholders can potentially benefit from compounding returns over time.