A dividend reinvestment plan (DRIP or DRP) is a program for buying stock directly from a company, usually through a transfer agent, and reinvesting your dividends in additional stock. Depending on the plan, you may or may not be required to reinvest your dividends. A DRIP enables you to invest a small amount of money regularly--usually on a monthly basis--without paying commissions.

There are three types of DRIPs:

• A company-run DRIP usually operates from the corporate headquarters as a function of shareholder relations. Often you can buy the company’s stock directly, even if you are not already a shareholder. Sometimes individual retirement accounts (IRAs) are available with the DRIP.
• Most DRIPs are run by transfer agents. These are financial institutions that manage DRIPs for multiple companies.
• Some brokerage firms allow you to reinvest dividends at no cost, even if the dividends are from companies that do not offer a DRIP plan. However these plans do not allow you to make small commission-free cash purchases.

There are several advantages to DRIPs:

• You do not need much money to invest--one share is usually sufficient for enrolling in a DRIP.
• DRIPs can be a good way to save, since they usually allow you to reinvest your dividends at no cost.
• Most DRIPs include stock purchase plans (SPPs) or optional cash purchase plans (OCPs) that enable you to buy additional stock--even very small amounts--with very low or no transaction fees.
• Some company-run DRIPs will sell you stock at a discount of 1-10% below the market price.
• DRIPs encourage you to invest for the long-term, with a small amount of money on a regular basis. Sometimes these regular investments can be made as automatic withdrawals from your bank account.

You can learn more about DRIPs by visiting CNN Money and Forbes.