What does reinvest dividends mean?

If you own a stock that pays dividends, you can choose to roll those dividend payments into the purchase of more of that stock, and usually at a discounted price with little or no commission fee. Reinvesting your dividends gives you the potential to compound your return if the stock performs well. It can be a great way to accumulate more ownership shares in a company at a reduced price.

Many publicly traded companies allow stockholders to opt in to a dividend reinvestment plan (DRIP), which automatically reinvests your dividends into the purchase of more shares or fractional shares. The shares are sold directly by the company, allowing investors to avoid brokerage fees, and they are typically offered for a lower price than what the stock is trading at on the market. And because you can buy fractional shares, you can put every dividend dollar to work.


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