Dividend Reinvestment Plan Law and Legal Definition

Dividend-reinvestment plan is an investment program whereby a current stockholder directs the corporation or mutual fund manager to reinvest cash dividends in additional shares of the same stock company. It enables common shareholders to reinvest their dividends plus supplementary cash into shares of the firm’s common stock.

The cash dividend is used to purchase the maximum number of full or fractional shares possible at the reinvestment price per share which is established by the company. The reinvestment price per share is usually the market price per share on the reinvestment date. However, some companies sell shares to participants at a discount. Normally, there is no purchasing or commission fee for buying the additional shares. Many Dividend-reinvestment plans permit participants to make optional additional purchases over and beyond the shares purchased with their dividends.