Dividend reinvestment plan is a plan offered by corporations allowing investors to reinvest their cash dividends by purchasing additional shares on the dividend payments date. A dividend reinvestment plan is a great way to maximize the value of your investment. Many dividend reinvestment plans allow you to buy shares commission free and at a discount to the current share price.

By systematically investing via a dividend reinvestment plan it allows investors the ability to dollar cost average.

The term dividend reinvestment plan is also known as a DRIP plan. Some companies that offer DRIP plans are General Electric, Proctor and Gamble, and Pfizer. DRIPs have become popular for a wide variety of investors as they enable them to effectively take advantage of dollar cost averaging with income in the form of dividends that the company is paying out. Not only is the investor guaranteed the return of whatever the dividend yield is, they may also earn whatever the stock appreciates/depreciates during their time of stock ownership as well. While the term DRIP is normally used for company sponsored plans, reinvestment of stock dividends is also available at no cost through some internet and non internet brokerage firms.

There are several key terms to understand when investing in dividend paying companies some of which include:

Dividend Re-Investment Plan: A plan offered by corporations allowing investors to reinvest their cash dividends by purchasing additional shares on the dividend payments date.

Dividend Yield: A financial ratio that shows how much a company pays out in dividends each year relative to

its share price. The dividend yield is calculated as the latest dividend rate divided by the stock’s latest closing price.

Dividend Rate: If a company's board has committed to dividend payments in the future, the latest reported dividend rate equals the number of times the company pays dividends per year times the latest dividend, expressed in dollars. If a company's board has not committed to dividend payments in the future, the latest reported dividend rate equals the total dividends paid in the past 12 months.

Dividend Payout Ratio: The current payout is the LTM dividend per share divided by LTM EPS, expressed as a percentage. The percentage indicates the percent of EPS that was paid out as a dividend.

Dividend Screener™: An internet based tool used to screen dividend paying stocks for growth, yield etc.

Dividend Ranking™: An internet based tool used to rank dividend paying companies in terms of the yield, growth etc.

Dividend Top 100™: An internet based tool used to sort the Top 100 Dividend paying companies by exchange or sector etc.

Dividend Analyzer™: An internet based tool used to analyze dividend paying companies.

Dividend Declaration Date: The date on which the next dividend payment is announced by the directors of a company. This statement includes the dividends size, ex-dividend date and payment date.

Ex Dividend Date: The major exchanges require 4 business days prior to the Record Date for recording ownership changes. The day that begins this 4-day period is the Ex-Date. Investors who purchase the stock prior to the Ex-Date are eligible for the latest dividend; investors who purchase the stock on or after the Ex-Date are not entitled to the dividend. Empirical evidence has shown that this is also the date that the market reflects the dividend policy in the stock price.

Dividend Record Date: The date established by an issuer of a security for the purpose of determining the holders who are entitled to receive a dividend or distribution.

Dividend Pay Date: The date on which a declared stock dividend is scheduled to be paid.

Dividend Growth: The amount of dividend payout increase/decrease vs previous payouts.

Cash Dividend: Money paid to shareholders, normally out of the corporation’s current earnings or accumulated profits.

Dividend Policy: The policy a company uses to decide how much it will pay out to shareholders in dividends.

Special Dividend: A non-recurring distribution of company assets, it is also known as an “extra” dividend.

Stock Dividend: A dividend payment made in the form of additional shares.

Stock Investing: A term used for the investor that purchases common stocks trading on stock exchanges.

Online Stock Trading: A way to purchase a stock online, normally through online brokers.

Stock Quote: A list of prices for a stock at a particular point during the trading day.

Stock: A type of security that signifies ownership in a corporation. There are two main types of stock: common and preferred.

Dividend History: The length of time a company has paid out dividends.

Dividend ETF: A security that tracks a dividend index, a commodity or a basket of assets like an index fund. An ETF trades like a stock and it is normally bought and sold throughout the trading day.

Dividend Capture: A term used in the process of purchasing a stock prior to the ex-dividend date.

Dividend Calendar: The payment timetable for a corporations annual dividend payouts.

Qualified Dividend: A certain type of dividend to which capital gains tax rates are applied.

Dividend Stock: A security that pays a dividend usually in the form of a cash payout.

Dividend Discount Model: A procedure for valuing the price of a stock by using predicted dividends and discounting them back to present value.

Canadian Dividend Stocks: The Toronto Stock Exchange lists many dividend paying stocks.

UK Dividend Stocks: The London Stock Exchange lists many dividend paying stocks.

Dividend Investing: A certain type of investment strategy focused on dividend paying companies.

DividendInvestor.com™ is a leading worldwide independent provider of dividend information and data for investment professionals. Our mission is to be the First In Dividend Data Worldwide™ by designing and developing essential tools and systems for the investment community with the highest level of accuracy and integrity. Financial planners, advisors and individual investors worldwide utilize DividendInvestor.com™ to research dividend data in order to make wise investment decisions. With proprietary tools for our members such as the Dividend Analyzer™, Screener™, Ranking™ and others, financial investors have the power to make their own informed dividend stock investment decisions. The world’s best value investors have long understood the power that dividends can provide. Many market analysts agree that historically, over 40% of the total stock market’s return has come from dividends. With such an amazing historical performance, it is easy to understand why dividends have become so critical when it comes to investing.