The mathematical core of a Dividend Reinvestment Plan (DRIP) relies on the geometric progression of share quantity. By converting cash distributions into additional fractional or whole units, the investor bypasses transaction costs and utilizes dollar-cost averaging. This process accelerates the exponential growth of the principal capital, especially within tax-sheltered accounts where the gross yield is preserved.
- Synthetic DRIP:
- A broker-level automation where only whole shares are purchased with accumulated cash.
- Treasury DRIP:
- Direct issuance from the company treasury, often featuring a 2-5% share price discount.
