Dividend re-investment plan or DRIP meaning

A dividend reinvestment plan (DRIP) is an optional facility under which a shareholder’s cash dividend is used to buy more shares in the company, usually via the company registrar, instead of being paid out. It is a market term, not defined in legislation or case law, and is operated under company law, securities rules and the plan terms. Key features: participation is by mandate (for all or part of a holding); shares are acquired either by market purchase or by issuing new shares. On market purchases, dealing costs and any applicable stamp duty/SDRT are deducted from the dividend before shares are bought. Where new shares are issued, transfer taxes are generally not payable. Fractional entitlements and timing are set by the plan rules. If new shares are issued, the company will usually require authority to allot and, where relevant, disapplication of pre‑emption rights (Companies Act 2006; Companies Act 2014 (Ireland)). Listed companies must follow disclosure and corporate action timetables. Treatment is broadly consistent across England & Wales, Scotland, Northern Ireland and Ireland, though stamp duty regimes differ. Compare with a scrip dividend, where shareholders receive newly issued shares in lieu of cash, with no dealing costs or transfer taxes.