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 plan, the company gives any cash dividends that investors Under would have received to a bank, which acts as a trustee. The bank then uses the money to repurchase the company's stock on the open stock market. The bank allocates the shares purchased to the participating shareholders' accounts on a pro rata basis. levels of participation in a dividend reinvestment program sugest that shareholders are content with the amount of cash dividends that the firm is paying out. Why do firms use dividend reinvestment plans? es decide to start, continue, or terminate their dividend reinvestment plans for their shareholders based on the firms' need for equity capital. A firm is likely to stop using "treasury purchase" DRIPs if it additional equity capital