Hewlett packard dividend reinvestment plan: a comprehensive guide

Hewlett Packard, commonly known as HP, is a renowned technology company that offers a diverse range of products and services to individuals and businesses worldwide. In addition to its innovative products, HP also provides investors with an opportunity to participate in its dividend reinvestment plan (DRIP). This article will explore the Hewlett Packard dividend reinvestment plan, explaining its benefits, how it works, and why investors may consider participating in it.

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What is a Dividend Reinvestment Plan (DRIP)?

A dividend reinvestment plan, or DRIP, is a program that allows investors to reinvest their cash dividends into additional shares or fractional shares of the underlying stock on the dividend payment date. It is a powerful investment strategy that enables investors to compound their returns over time by accumulating more shares, which themselves pay dividends that will be reinvested.

DRIPs can be set up through a brokerage or investment company, but they usually refer to formal programs offered by publicly traded corporations to existing shareholders. Hewlett Packard is one such company that provides its shareholders with the opportunity to participate in its dividend reinvestment plan.

Understanding the Hewlett Packard Dividend Reinvestment Plan

The Hewlett Packard dividend reinvestment plan allows shareholders to reinvest their dividends back into the company's stock. Instead of receiving cash dividends, shareholders have the option to use the dividend amount to purchase additional shares directly from HP.

One of the key advantages of participating in the Hewlett Packard dividend reinvestment plan is the ability to buy shares commission-free or for a nominal fee. The company also offers a significant discount on the current share price, allowing investors to acquire more shares at a lower cost basis compared to purchasing on the open market.

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It's important to note that while shareholders do not receive the reinvested dividends as cash, the reinvested dividends are still considered taxable income. They need to be reported as ordinary dividends for tax purposes, unless they are held in a tax-advantaged account like an IRA.

Advantages of the Hewlett Packard Dividend Reinvestment Plan

The Hewlett Packard dividend reinvestment plan offers several advantages for both the company and the shareholders who participate in it.

Advantages for the Investor

One of the primary advantages for investors participating in the Hewlett Packard dividend reinvestment plan is the ability to accumulate more shares without paying a commission. Additionally, the company offers shares at a discount ranging from 1% to 10% off the current share price. This discount, combined with the absence of commissions, allows investors to lower their cost basis and potentially increase their overall returns.

By reinvesting dividends, investors can benefit from the compounding of returns over the long term. As the number of shares increases, so does the dividend income received, which can then be reinvested to purchase even more shares. This compounding effect can significantly enhance the total return potential of the investment.

Furthermore, the Hewlett Packard dividend reinvestment plan allows investors to buy fractional shares. This means that every dividend dollar is put to work, as even the smallest amount can be used to purchase a fraction of a share.

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Advantages for the Company

From the company's perspective, the Hewlett Packard dividend reinvestment plan offers several benefits. Firstly, when shares are purchased from the company for the DRIP, it provides additional capital that can be used for various purposes, such as research and development or expansion initiatives.

Secondly, shareholders who participate in the dividend reinvestment plan are more likely to hold onto their shares, even during market downturns. Participants in the DRIP program tend to be long-term investors who understand the role dividends play in the growth of their portfolios. Additionally, the shares purchased through the DRIP are not as liquid as those purchased on the open market. They can only be redeemed directly through the company, which further encourages long-term ownership.

How to Participate in the Hewlett Packard Dividend Reinvestment Plan

To participate in the Hewlett Packard dividend reinvestment plan, shareholders must meet certain criteria set by the company. Most DRIPs, including the one offered by HP, are sponsored by the company through their transfer agent, who holds the shares.

It's important to note that some brokerages may also allow customers to participate in a transfer agent DRIP while keeping the shares at the brokerage firm. In this case, the broker buys the shares using the dividend proceeds in the open market.

Frequently Asked Questions

Q: Can new investors participate in the Hewlett Packard dividend reinvestment plan?
A: While most DRIPs are intended for existing shareholders, some companies, including Hewlett Packard, make them available to new investors as well. However, there may be a minimum purchase amount specified by the company. Q: Are the dividends reinvested through the Hewlett Packard dividend reinvestment plan taxable?
A: Yes, the reinvested dividends are considered taxable income and need to be reported as ordinary dividends for tax purposes, unless they are held in a tax-advantaged account like an IRA.

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The Hewlett Packard dividend reinvestment plan is a valuable opportunity for investors to compound their returns over time by reinvesting their cash dividends into additional shares of the company's stock. By participating in the DRIP, investors can benefit from commission-free or low-cost share purchases, discounts on the current share price, and the compounding effect of reinvesting dividends. Additionally, the company benefits from increased capital and shareholder loyalty. Overall, the Hewlett Packard dividend reinvestment plan is an attractive option for long-term investors looking to maximize their returns.

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