Benefits of DRIPs
Note: For recommendations as to the overall suitability of an investment, please contact your financial advisor.
In general, DRIPs are a suitable investment for investors looking to build their holdings of a company over time, in a cost effective manner.
- DRIPs facilitate the purchase of shares at regular intervals, for little or no commission.
- Most DRIPs enable smaller purchases of shares (including partial shares), which would not be possible or cost effective through other means.
- Some DRIPs offer a discount on shares when they are purchased with reinvested dividends (the investor acquires shares at less than the market price).
- DRIPs with the optional cash payment feature enable the investor to establish a program of regular share purchases, at an investment amount that best meets his/her needs.
Specific benefits of participating in DRIPs depend on the plan features – please consult the plan documentation for details.
Regular investments at the same dollar amount ensure that more shares are purchased when the share price is low and fewer are purchased when the share price is high. This approach effectively lowers the average price paid for shares and is known as ‘dollar-cost averaging’. Here’s how it works:
|Regular Investment||Share Price||Shares Purchased|
The average cost per share acquired is calculated by dividing the total investment ($500) by the total number of shares purchased (38.25).
Average share cost = $13.07 ($500 ÷ 38.25)
The average price per share paid by the investor is calculated by dividing the total of the share prices paid ($68.20) by the total number of share purchases (5).
Average share price = $13.64 ($68.20 ÷ 5)