How Dividend Reinvestment Programs (DRIPs) Work

Dividend reinvestment programs (DRIPs) are an underused but highly valuable strategy that allow you to grow your wealth over time.

DRIPs use the dividend payments you collect from a company to automatically buy more shares instead of giving you the cash.

And DRIPs have three distinct benefits...

DRIP Benefit No. 1: They Take the Emotion Out of Investing

Dividend reinvestment programsExcitement over a stock's potential or fear over a market pullback can cause you to buy or sell a lot of shares at once.

But DRIPs keep you disciplined. They let you accumulate shares over time at a moderate pace.

Must See: This Great Depression-Era "Secret" Helped Transform Two Teachers into Millionaires. Read more...

That way you don't end up rethinking a quick, emotion-based decision you made with your investment.

DRIP Benefit No. 2: They Cut Out Brokerage Fees

With DRIPs, some companies allow you to reinvest dividends directly with them, without using a broker.

These no-fee DRIPs remove transaction fees, which can be as much as $9.99 per trade.

That means more money for investors.

DRIP Benefit No. 3: They Could Net You a 1,000% Return

If you invested $10,000 in Johnson & Johnson (NYSE: JNJ) stock on Jan. 1, 1995, and reinvested the dividends, your investment would now be worth $118,134.

DRIPs

And this is just one powerful example of how DRIPs can increase your wealth.

For 2017, we made a list of the seven best dividend stocks to buy. Start building your long-term wealth by reading it, right here.

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