Dividend reinvestment means reinvesting dividend payments from stocks you hold back into your stock or investment portfolio rather than spending them. This may involve taking the dividend paid by each individual stock and using it to buy more shares of the same stock, or may involve buying other stocks or assets as part of a portfolio to help spread the risk. By reinvesting dividends, an investor could benefit from increased value growth from his or her increased stock holdings as well as increased dividend income from subsequent dividend payments.
Many large listed companies offer dividend reinvestment plans (DRIPs) which automatically buy new shares with dividend payments on behalf of the investors. Under such plans, cash may be carried forward to subsequent dividend payments if there isn’t enough to buy new shares at the initial payment date, or an investor may be given fractional shares.
