A dividend reinvestment plan (i.e. DRIP) automatically reinvests the cash dividends an investor receives to purchase more stock in the company. The dividends are reinvested without commissions or brokerage fees which allows investors to receive additional shares at a lower cost.
DRIPs issue shares using dollar-cost averaging. This technique averages out the price investors pay for shares over a long period. An investor is not buying shares at their peak price, nor at their lowest price.