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Finance GlossaryDividend Reinvestment Plan (DRIP)
Dividend Reinvestment Plan (DRIP)
Definition of Dividend Reinvestment Plan (DRIP)
A Dividend Reinvestment Plan is a feature where an investor can reinvest the dividends they earn to buy additional shares or units of a mutual fund, either fractional or whole.
Stocks and mutual funds offer Dividend Reinvestment Plans. As a result of reinvesting dividends, investors can add more money to their existing holdings for better compounding. That said, dividends that are reinvested are taxable.
Stocks and mutual funds offer Dividend Reinvestment Plans. As a result of reinvesting dividends, investors can add more money to their existing holdings for better compounding. That said, dividends that are reinvested are taxable.
Related Terms
IPO
An IPO or Initial Public Offering is the method in which a privately held company becomes a publicly listed company. Existing shareholders must approve the IPO plan before the company can go public. Once shareholders approve, the company will either hire an intermediary or go for a Direct Public Offering, the result of which will be the determination of a price for the new equity shares that will be listed in the primary market.
Dividend Payout Ratio
The Dividend Payout Ratio refers to dividends paid to shareholders as a percentage of the net income or Earnings Per Share (EPS) of a company. The formula to calculate dividend payout ratio is:
DPR = Dividend / Net income
or
DPR = Dividend / Earnings Per Share
A higher dividend payout ratio means that a company is redistributing a chunk of its profits to shareholders, which generally implies that the company is well-established.
DPR = Dividend / Net income
or
DPR = Dividend / Earnings Per Share
A higher dividend payout ratio means that a company is redistributing a chunk of its profits to shareholders, which generally implies that the company is well-established.
Defensive Stock
A defensive stock refers to the shares of iconic companies that generate stable and consistent returns and dividends, regardless of the market conditions.
Defensive stocks are rare because companies that have defense against every market condition are rare.
While defensive stocks may not generate high returns, they are known to add stability and defense against declining economic conditions. In India, stock of ITC Limited is an example of a defensive stock.
Defensive stocks are rare because companies that have defense against every market condition are rare.
While defensive stocks may not generate high returns, they are known to add stability and defense against declining economic conditions. In India, stock of ITC Limited is an example of a defensive stock.
Equity Shares
Equity shares is a term used to describe stock of a company that’s issued via an Initial Public Offer (IPO), already issued and traded on the stock market, or freshly available through a Follow on Public Offer (FPO).
For a company, the goal of issuing equity shares is to raise money while investors who buy these equity shares get perks like voting rights, dividends, and even a share of the assets in case the company is liquidated.
For a company, the goal of issuing equity shares is to raise money while investors who buy these equity shares get perks like voting rights, dividends, and even a share of the assets in case the company is liquidated.
Algorithmic Trading
Algorithmic trading or algo trading means buying and selling securities using computer algorithms that follow a set of predefined rules to execute trades.
In algo trading, predefined rules can be set to act on triggers like stock price, volume, time, and others.
In algo trading, predefined rules can be set to act on triggers like stock price, volume, time, and others.
Hammer Candlestick Pattern
A Hammer Candlestick pattern occurs when a stock, commodity, or currency opens much lower than its previous closing price but moves close to or above the the same price at the close. The pattern looks like a hammer, hence the name “Hammer Candlestick”.
The candlestick can be read as follows:
- The main body shows the difference between the financial security’s opening and closing price.
- The wick (shadow) of the candlestick shows the high and low prices of the security for the day.
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