DRIP: What is it and how do you build your fortune with this ?

DRIP is an acronym for dividend reinvestment plan. When an investor signs up under this plan, the dividends on the shares are not paid out to the holders. They are used for purchasing additional shares in the company. These additions also yield dividends and create a multiplier effect over a period of time. This coupled with capital appreciation possibilities will ensure a greater overall return. The costs of investing, purchasing shares is also very low or none. Let us assume that you have invested $7000 (100 shares at $70 each) in a pharmaceutical giant under the DRIP plan. The company pays a dividend of $1.60 each year. The dividends are paid quarterly. $0.40 per quarter. Every quarter, there would be a return of $40.The company would purchase a fractional share and add to your holding. At the end of the quarter, your holdings will increase from 100 shares to 100.5 shares. This will go on every quarter. Usually, you cannot buy 0.5 shares or 1 share, because you need to pay a commission to a broker between $7 to $29. This is where the real savings lie. The shares are bought and added to your holding - in many cases free of any costs.
One could also look at the possibility of buying shares directly from the company. Some companies offer that. You could save on brokerage etc and sign up for the reinvestment plan. Another strategy might be to invest a small sum every month in a good company share. This could be $50 or $100 a month and then move it to the reinvestment plan. Fees and costs, over a long term, diminish returns. Using a good DRIP plan would reduce or eliminate this. The multiplier effect over a long period of time can make a fortune.
Many companies require the shares to be registered in your name. There are websites where you could purchase one share, get it registered in your name, and contribute small amounts every month that can be invested in a reinvestment plan.
As with any investment, always consult a professional before you take a decision.