◈ GLOSSARY · INVESTING
Dividend Reinvestment (DRIP).
A definition, in plain English — with the books that teach it.
Reviewed by ClearValue Editorial Team · Jun 27, 2026
◈ DEFINITION
What it means
Definition
Automatically using cash dividends to buy more shares (including fractional shares) of the security that paid them, instead of taking the cash. It's how compounding actually compounds in equity portfolios — every reinvested dividend buys more shares that themselves pay dividends. Note: reinvested dividends are still taxable in the year paid if held in a taxable account.
◈ IN PRACTICE
Example
You own 1,000 shares of a stock paying a $1.00 annual dividend, currently priced at $50. Year one pays $1,000, which buys 20 more shares. Year two you own 1,020 shares and the dividend (held flat) pays $1,020. Over decades, that snowball is the bulk of long-term equity returns.
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