A dividend reinvestment program is also known as a DRP or DRIP.
With a DRP, we own the stock in exactly the same way as for other stocks, but instead of taking a cash dividend for the stock, we take the dividend in more stock. So if Wendy's hands us $1.42 for a dividend, rather than taking the dividend in cash and blowing it on a Frosty, we buy more Wendy's stock (in this case, a shard of a share). As far the IRS is concerned, we had the $1.42 in our hot little claws, and then turned around and bought more stock. The advantage of a program like this is that we slowly accumulate more stock and the dividends get larger and larger since they're being paid on more shares of stock as time goes by.
DRPs are also different from our normal stock arrangement in that we don't do this through our broker (who would charge us $8.00 for the privilege of spending our $1.42 on more stock), but through the company itself (or rather its agent, which could be another broker, but tends to be a bank). Most DRP arrangements either don't have a service charge associated with them, or else waive the fee, so that it shows on the statement, but isn't actually charged.When we purchase a DRP stock, it happens via mail order. We send them a check, they hold onto it awhile, and on the next buy-in date, the money gets turned into stock. Most DRP programs allow you to buy stock very infrequently. Normally, there are only one or two days a month that the company astrologer deems propitious for DRP stock purchase, which we call the buy-in dates. If we send them a check on the 5th, and the buy-in date isn't until the 23rd, the check turns into stock on the 23rd, but we don't know for sure how much stock it turned into until the next statement date, which could be at the end of the quarter. (The dates that a buy is allowed appear to be fairly random, but are probably related to the company's fiscal calendar.) We send them a check for a dollar amount and whatever the stock is trading on the next buy-in date is what we purchase the stock at. Since we can own fractional shares of the stock in a DRP, all the cash gets turned into stock.
To see more information about the Loot Lizards DRP stocks, follow these links: