DRIP (Dividend Reinvestment Plan) — What it is and How it Works?

Definition

DRIP (Dividend Reinvestment Plan) is a program for automatically reinvesting dividends in additional shares of the same company. Instead of receiving dividends in cash, the investor automatically buys more shares with them.

How Does DRIP Work?

The mechanism is simple:

1. Company pays dividend (e.g., 50 PLN)
2. Broker automatically buys additional shares of that company for 50 PLN
3. At the next dividend, you have more shares → higher dividend
4. The cycle repeats — the snowball grows

Fractional Shares

A key advantage of DRIP is the ability to buy fractional shares. If a share costs 200 PLN and the dividend is 50 PLN — you buy 0.25 shares. Without DRIP, that 50 PLN would sit idle in your account.

Why Does DRIP Accelerate Portfolio Growth?

DRIP triggers a double compound effect:

• Growing number of shares — you buy new ones with each dividend
• Growing dividend — dividend companies often increase payouts yearly

The effect after 20 years can be dramatic. A portfolio with DRIP can be 2–3 times larger than a portfolio where dividends went to the account and weren't reinvested.

DRIP in Poland — Availability

Not all Polish brokers offer automatic DRIP:

• Interactive Brokers — automatic DRIP for US and European companies
• Trading 212 — automatic DRIP with fractional shares
• XTB, mBank, Bossa — no automatic DRIP; you must reinvest manually

Manual reinvestment is less convenient but gives the same effect, as long as you do it regularly.

DRIP and Taxes

In Poland, dividends are subject to the Belka tax (19%) even if reinvested. The broker deducts the tax and buys shares with the remainder. Exception: dividends in IKE — no tax, so 100% of the dividend keeps working.

How Freenance Can Help

Freenance tracks your dividends and reinvestment effect over time. You can see how DRIP accelerates portfolio growth and how many additional shares you bought with reinvested dividends.

👉 Track DRIP effect with Freenance — freenance.io