Dividend investors have a variety of ways they can access their favorite dividend stocks. The traditional route is to simply collect dividends and the reallocate those dividends manually on a regular basis — generally quarterly — to existing or new investments.

However, certain companies offer what are called Dividend Reinvestment Plans, or DRIP for short. These plans make reinvesting dividends a breeze for investors, and we think they’re a terrific way to help investors take a hands-off approach to investing in high-quality dividend stocks.

In this article, we’ll take a look at what Dividend Reinvestment Plans are, why investors would want to use them, and three examples of DRIP stocks we like for the long-term.

What are Dividend Reinvestment Plans?

DRIP stocks are those that offer investors access to automatic reinvestment of dividend proceeds. This differentiates DRIP stocks from others in that instead of simply receiving a credit to one’s brokerage account for dividends paid, DRIP stocks offer investors the ability to automatically buy more shares of that company’s stock with dividend proceeds.

This takes the guesswork and effort out of reinvesting dividend proceeds, and it allows the investor to access to the benefits of reinvesting proceeds without the effort. This hands-off approach makes DRIP stocks very attractive for long-term investors looking to take advantage of a fee-free way to compound their wealth over time with high-quality dividend stocks. That’s why we like them, and now, we’ll take a look at three high-quality dividend growth stocks that offer dividend reinvestment.

Three DRIP Stocks We Like

When looking for high-quality dividend growth stocks, we look for long-term earnings moats, end-market growth that affords all entrants to grow, and a management team that is willing and able to return ever-higher amounts of cash to shareholders.

Our first stock that fits these criteria is healthcare conglomerate Johnson & Johnson (JNJ), a stock that has an exemplary 60-year history of annual dividend increases. That puts J&J in extremely rare company on that measure, and it is one of the reasons why we like the stock.

The company’s average dividend increase over the past decade is about 6%, and we see roughly that same level of growth in the years ahead. With earnings growth slated to be in the mid-single digits, as well as a payout ratio of just 40%, J&J almost certainly has decades of further dividend growth in front of it. We also like it’s natural recession resilience, so for DRIP investors, it ticks all the boxes.

Our second stock is Illinois Tool Works (ITW), an industrial product and tool maker based in the US. Like J&J, Illinois Tool Works has an otherworldly dividend increase streak of 58 years, meaning its dividend has stood the test of time in terms of competition, recessions, technological changes, and more.

The company’s average dividend increase in the past decade is also very high at nearly 13%, making Illinois Tool Works a tremendous dividend growth story. With strong earnings growth anticipated over the long-term, we think Illinois Tool Works is a great stock to use with a DRIP because of the double compounding of earnings and dividend growth.

Our final stock is S&P Global (SPGI), a research and analytics company that provides a wide variety of investment resources, including credit ratings, to institutions and individual investors globally.

The company’s dividend increase streak stands at 48 consecutive years, and like the others in this list, S&P Global has a terrific growth outlook that should afford many more years of dividend increases. We see earnings growth at 8% in the coming years, and the company’s average dividend increase in recent years is almost 13%. Even so, the payout ratio is just 21%, so many more years of dividend increases are almost a certainty.

Final thoughts

We like high-quality dividend growth stocks for long-term wealth compounding, and one very attractive way to do this is through DRIP stocks. They allow investors to access great companies with no-fee, automatic reinvesting of dividends for a truly hands-off approach to dividend investing. We like Johnson & Johnson, Illinois Tool Works, and S&P Global as three examples of great dividend growth stocks that offer dividend reinvestment plans.
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Bob Ciura has worked at Sure Dividend since October 2016. He oversees all content for Sure Dividend and its partner sites. Bob received a Bachelor’s degree in Finance from DePaul University, and an MBA with a concentration in Investments from the University of Notre Dame.