Under dividend reinvestment plans (DRIPs) the common shareholder is given the option of receiving their annual dividends as additional common shares of the company, instead of a cash payment. The company assigns a value for the additional shares, based on a share price that is slightly lower than the market price. ​Most professional financial advisors encourage their clients to take this option, if it is available, because the client does not have to decide what to do with their cash dividends, since they are automatically converted into company shares. In addition, you avoid trading and brokerage fees when you acquire the shares. ​​

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I agree that for those investors who have little or no interest in managing their investments, DRIPS are a valuable option. However, for those investors who are actively managing their investment portfolios, the disadvantages of DRIPs outweigh their advantages. In particular, the prevailing market value of the shares may be significantly higher than their fair value, in which case you are buying shares when their dividend yield is much lower than its historic value. Secondly, even if the prevailing market value is lower than the fair value, you may have other companies in your portfolio which can be purchased at an even greater discount to their fair share value, and possibly near an historically high dividend yield.  

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For anyone who is willing to take the time to monitor and manage their investments, it is preferable, in my opinion, to receive all of your dividend payments as cash, which can simple accumulate in your portfolio. When the market price of one or more of your favourite companies becomes available at a significant discount to its fair value, you can use your accumulated cash to buy those shares. 

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