9. Dividend reinvestment plans Dividend reinvestment plans (DRIPs) allow shareholders to reinvest their dividends in the company by purchasing additional shares instead of receiving cash dividend payments. The majority of large companies offer dividend reinvestment plans to their stockholders. These plans allow stockholders to automatically reinvest their dividends in the stock of the firm paying the dividend. Dividend reinvestment plans can be classified as either old stock or new stock plans. Understanding how dividend reinvestment plans work Under dividend reinvestment plan, the company gives any cash dividends that investors would have received in a bank, which acts as a trustee. The bank then uses the money to repurchase the company's existing stock in the stock market. The bank then allocates the shares purchased to the participating stockholders' accounts on a pro rata basis. levels of participation in a dividend reinvestment program suggest that stockholders would be better served if the firm reduced its cash dividends