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Dividend reinvestment is and how this affects the existing shares that investors have in a company.

Dividend reinvestment is and how this affects the existing shares that investors have in a company.

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Dividend Reinvestment Plans (also known as DRP) gives the shareholders the choice of using their dividends for acquiring more fully paid ordinary shares instead of receiving dividends in cash. Since these shares are purchased through a DRIP typically come from the own reserve of company, thus are not marketable through stock exchanges. When investors want to redeem any shares purchased through a DRIP, they can only sell them back to the company. Due to this reason a DRIP that is operated by the company itself will not have any effect on the stock price of the existing shares in the market.

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