There are two types of dividend reinvestment plans.Under one type of plan,the firm uses the cash that would have been paid as dividends to buy stock on the open market.Under the other type,the company issues new stock,keeps the cash that would have been paid out,and in effect sells new stock to those investors who choose to reinvest their dividends.

Question

Quizplus · Accepted Answer

There are indeed two types of dividend reinvestment plans (DRIPs): one where the company buys back shares on the open market to fulfill the reinvestment, and another where the company issues new shares, retaining the cash that would have been paid out as dividends.

There Are Two Types of Dividend Reinvestment Plans