11. Dividend reinvestment plans Dividend reinvestment plans (DRIPS) allow shareholders to reinvest their dividends in the company itself by purchasing additional shares rather than being paid out in cash. Understanding how dividend reinvestment plans work dividend reinvestment program invests the dividends in newly issued stock. This type of plan raises new capital for the firm. Some firms that use price. dividend reinvestment plan will allow stockholders to purchase stock at a price slightly below the market Why do firms use dividend reinvestment plans? Companies decide to start, continue, or terminate their dividend reinvestment plans for their stockholders based on the firms' need for equity capital. A firm is likely to start using new stock DRIPS if it additional equity capital.