A dividend reinvestment plan automatically uses the dividends a stock or fund pays to buy more shares, rather than depositing them as cash. Those additional shares then pay their own dividends, compounding your income over time.
DRIP is a powerful wealth-building tool during the accumulation years because it puts every payout straight back to work. Once you need the income to live on, you can switch to taking dividends as cash.
Related terms: Safe Withdrawal Rate · Marginal Tax Rate