DRIP Investing: The Lazy Strategy That Outperforms 90% of Traders
Dividend reinvestment plans require zero skill, zero timing, and zero effort—yet they beat most active traders. Here's how DRIP works.
Most investors spend hours researching stocks, timing entries, and second-guessing every decision. The result? About 90% underperform a simple index fund.
Meanwhile, DRIP investors set up their accounts once, then ignore them for decades. No research. No timing. No stress.
And they usually win.
What Is DRIP Investing?
DRIP stands for Dividend Reinvestment Plan. Instead of receiving dividend payments as cash, you automatically reinvest them to purchase more shares of the same stock.
That’s it. That’s the whole strategy.
Your $100 quarterly dividend buys more shares. Next quarter, those additional shares generate slightly more dividends. Which buy more shares. Which generate more dividends.
The snowball grows on its own.
The Math of Reinvested Dividends
Let’s compare two investors who each buy $10,000 of a stock yielding 3% with 7% annual dividend growth:
Investor A: Takes dividends as cash, spends them
Investor B: Reinvests all dividends (DRIP)
After 30 years:
| Metric | Takes Cash | DRIP |
|---|---|---|
| Shares owned | 100 (unchanged) | 247 |
| Annual dividend | $2,280 | $5,628 |
| Portfolio value | $76,000 | $188,000 |
The DRIP investor owns 2.5x more shares and has a portfolio worth 2.5x more—from the same initial investment.
See how your own dividend stocks could compound with our DRIP Forecast Calculator.
Why DRIP Beats Active Trading
1. Removes Emotion
When markets crash, active investors panic. They sell at bottoms, wait for “certainty,” and buy back higher.
DRIP investors don’t make decisions. Their dividends automatically buy more shares—often at the lowest prices when stocks are most hated.
The March 2020 crash? DRIP investors bought heavily while everyone else sold. They didn’t plan to. It just happened automatically.
2. Dollar-Cost Averaging on Autopilot
DRIP naturally implements dollar-cost averaging. You’re buying shares every quarter (or month) regardless of price:
- Prices high? Your dividend buys fewer shares.
- Prices low? Your dividend buys more shares.
Over time, this smooths your average cost and reduces the impact of volatility.
3. Compounds the Compounding
Regular compounding is powerful. Compounding your dividend income is exponential.
Watch what happens to a $20,000 investment in dividend stocks (3.5% yield, 6% growth, 4% price appreciation):
| Year | Annual Dividends | Yield on Original Investment |
|---|---|---|
| 1 | $700 | 3.5% |
| 10 | $1,568 | 7.8% |
| 20 | $4,191 | 21.0% |
| 30 | $11,193 | 56.0% |
By year 30, you’re earning 56% annually on your original investment—just in dividends. Not including price appreciation.
Model your own projections with our DRIP Forecast Calculator.
4. No Fees, No Friction
Most DRIP programs have zero transaction fees. Brokerages process the reinvestment automatically.
Compare that to active trading:
- Commission per trade: $0-10
- Bid-ask spread: 0.1-1%
- Emotional cost: Priceless (and not in a good way)
Every trade is a leak in your wealth bucket. DRIP has no leaks.
The “Boring” Advantage
DRIP investing is almost comically boring. There’s nothing to do.
Set it up. Fund it. Ignore it for decades.
This boredom is a feature, not a bug. Exciting investing—frequent trades, hot stock tips, market timing—destroys wealth. Boring investing builds it.
The average stock is held for 5.5 months. The average DRIP investor holds for years or decades. Guess who builds more wealth?
Best Stocks for DRIP
Not all dividend stocks deserve your DRIP dollars. Look for:
Dividend growth, not just high yield. A 2% yield growing 10% annually beats a 5% yield growing 2%. In 20 years, the lower yield produces more income.
Long dividend history. Dividend Aristocrats have increased dividends for 25+ consecutive years. They’ve survived recessions, wars, and pandemics.
Sustainable payout ratios. Companies paying out 80%+ of earnings as dividends have little room for growth or error.
Quality businesses. The dividend is only as good as the business generating it. Mediocre companies cut dividends in hard times.
Use our Dividend Growth Calculator to project how different yield and growth combinations affect your long-term income.
How to Set Up DRIP
Through your broker: Most brokerages (Fidelity, Schwab, Vanguard) offer automatic DRIP for any dividend-paying stock. Enable it in account settings—takes two minutes.
Through the company: Some companies run their own DRIP programs. These sometimes offer shares at a small discount, but add administrative hassle. Usually not worth it.
For ETFs and index funds: DRIP works for dividend ETFs too. Enable reinvestment for funds like VYM, SCHD, or even total market funds like VTI.
DRIP in Retirement
What about when you actually need income?
Simple: turn off DRIP.
After decades of reinvesting, your dividend stream will be substantial. When you need the income, flip the switch. Dividends now hit your account as cash instead of buying shares.
You’ve built the machine. Now let it pay you.
The transition is seamless—no selling, no capital gains taxes, just steady income from a portfolio you built on autopilot.
The 30-Year DRIP Challenge
Here’s a thought experiment: What if you DRIP’d $500/month for 30 years?
Assuming a 3% yield, 7% dividend growth, and 4% price appreciation:
- Total invested: $180,000
- Portfolio value at year 30: $892,000
- Annual dividend income: $47,000
You’d have nearly five times your invested capital, generating $47,000 yearly—more than enough for many retirements—without selling a single share.
Run your own scenario with our DRIP Forecast Calculator.
Start Today
DRIP requires nothing from you except starting.
- Open a brokerage account if you don’t have one
- Enable dividend reinvestment in settings
- Buy quality dividend stocks or ETFs
- Forget about it
Check back in 10 years. Be pleasantly shocked.
The 90% of traders who underperform aren’t dumber than you. They’re just doing more—and more is the enemy of compound returns.
Be lazy. Be boring. Let DRIP do the work.