Dividend reinvestment plans (DRIPs) allow shareholders to reinvest their dividends in the company itself by purchasing additional shares rather than being paid out in cash. Understanding how dividend reinvestment plans work   A new stock/a old stock  dividend reinvestment program invests the dividends in newly issued stock. This type of plan raises new capital for the firm.   Low/ high levels of participation in a dividend reinvestment program suggest that stockholders are content with the amount of cash dividends that the firm is paying out.   Why do firms use dividend reinvestment plans? Companies decide to start, continue, or terminate their dividend reinvestment plans for their stockholders based on the firms’ need for equity capital. A firm is likely to start using new stock DRIPs if it needs/doesn't need  additional equity capital.

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