What Is a DRIP? Dividend Reinvestment Explained

Updated June 12, 2026

DRIP stands for dividend reinvestment plan: instead of receiving dividends as cash, each payment automatically buys more shares of the same investment. Those new shares earn their own dividends, which buy more shares again. That loop — dividends buying dividend-payers — is the simplest form of compounding most investors will ever use.

How a DRIP works in practice

Say you hold 100 shares of an ETF priced at $100 that pays $1.00 per share each quarter. Without reinvestment you receive $100 cash and still hold 100 shares. With DRIP enabled, that $100 buys one more share — next quarter, 101 shares earn dividends. Each cycle is small; the accumulation is not. At those flat numbers, $10,000 grows to about $14,889 over ten years with reinvestment versus $14,000 without — and the gap widens every year after, because the reinvested shares keep paying.

You can see this on any of our calculators — the chart shows the with-and-without-DRIP lines diverging. Try it with SCHD's real numbers or the universal calculator.

Two kinds of DRIP

Brokerage DRIP (what most people use). A setting inside your brokerage account. Works on most stocks and ETFs, free at every major U.S. broker, and almost all of them reinvest into fractional shares so the full dividend goes to work immediately.
Company-sponsored DRIP.Run by the company's transfer agent; some plans historically offered small share-price discounts. These predate free brokerage trading and matter much less today.

How to turn it on

Open your brokerage account settings or the holding's detail page.
Look for "dividend reinvestment," "reinvest dividends," or "DRIP" — most brokers let you enable it per holding or account-wide.
Confirm fractional-share reinvestment is on (it usually is by default).

What to know before enabling it

Reinvested dividends are still taxablein a regular brokerage account — you owe tax on dividends the year they're paid even though you never saw the cash. In an IRA or 401(k) this doesn't apply. See how dividends are taxed.
Each reinvestment is a new tax lot. Brokers track the cost basis for you, but selling later involves many small lots.
Your portfolio drifts toward what you already hold. Reinvestment concentrates positions over time; rebalancing stays your job.
Income investors may want the cash. If dividends fund living expenses, taking them as cash is the point — DRIP is for the accumulation phase. Many investors reinvest while working, then switch dividends to cash later.

Does reinvesting actually matter that much?

Over short periods, barely. Over decades, enormously — reinvested dividends have historically accounted for a large share of total stock-market returns, because every reinvested payment adds shares that compound for all remaining years. The longer the horizon and the higher the yield, the wider the gap. The calculatormakes the comparison concrete for your own numbers: toggle "Reinvest dividends" off and watch the final value drop.