Investing in Stocks With DRPs: Adding Yield to Your Returns

by Wayne A. Thorp, CFA

Investing In Stocks With DRPs: Adding Yield To Your Returns Splash image

Many investors get caught up in the daily fluctuations of stock prices and forget about the other element of stock investment returns: dividend income.

Total return consists of price appreciation and dividend income, and while prices go up and down, dividends tend to be steadier.

A conservative, low-cost approach to investing in dividend-paying stocks is with dividend reinvestment plans (DRPs or DRIPs); particularly those that sell initial shares directly to the public (direct purchase plans, or DPPs/DIPPs). Direct purchase plans allow investors to bypass a broker, and also often the commissions they charge. With these plans, dividend payments immediately go to work for you with little or no transaction costs. [See page 15 for more information.]

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Wayne A. Thorp, CFA is a vice president and senior financial analyst at AAII and editor of Computerized Investing. Follow him on Twitter at @AAII_CI.


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