It is an arrangement where dividends are automatically reinvested into more shares. Thus, a DRIP plan makes it easier and, at times, cheaper to reinvest dividends.
A DRIP plan offers investors an opportunity to reinvest their cash dividend and purchase the company shares. However, they will need to buy the shares directly from the company.
However, if we assume that the company’s stock is trading at $50 when receiving the dividend, you will be allocated an additional 20 shares instead of a dividend check.