Let us break this down 

1. You buy a stock 

2. Some time passes 

3. Your stock yields cash dividends 

4. You decide to drip that money over 

5. And purchase more of the same stock with the dividends 

Now let us piece this together; first you buy a stock like IBM, some time passes and IBM yields its yearly cash dividends! Now instead of taking the cash out of the market you decided to “drip” the money over to buy more IBM stock; therefore initiating something called Dividend Reinvestment Plan or DRIP! #yousmartinvestoryou

DRIP is the idea of taking your cash dividends and instead of getting them delivered to you, you use them to purchase additional shares of the same company. This is advantageous towards you because you don’t have to pay trading costs (aka – commissions) and can get up to a 10% discount on the share since you are purchasing directly from the companies reserve not the market! In a sense you are automatically doing something called dollar cost average and compound interest, two of ORCAS favorite things! #whalehighfive

This is overall a win/win. As for the companies that offer DRIP (as of 2016 most do) they get the confidence of investors continually investing in their company and this creates more capital for the company. 

It is important to remember even though you are not collecting the dividend, you will still have to report it on your taxes, sorry no way to avoid Uncle Sam but hey you are getting a discount on your purchased shares! 

Overall, DRIP investing is a great way to maximize the “free” money you are receiving from dividends, we here at ORCA believe in this concept and if you would like to learn how our partnered advisers implement these strategies reach out here