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If a company you invest in does not offer scrip dividends, it may still be possible to take dividends in shares through a dividend reinvestment plan, known as a DRIP – an appropriate acronym not because dividend reinvestment plans are stupid, but because they allow you to drip more shares into your investment pot.

The difference between a scrip issue and a DRIP is that no new shares are issued with a DRIP. Instead, participants in the scheme have their cash dividend paid directly to the scheme administrator, which is usually the company’s registrar. The administrator then calculates the number of shares to which each participant is entitled and buys the shares on the stock market. Shares are then distributed to the participants.

The administrator will obtain the best price it can for the purchase and because the share purchases can be aggregated, the dealing costs tend to be relatively low.

The arguments for and against DRIPs are exactly the same as for scrip dividends. If you elect to take scrip dividends where possible you will almost certainly be keen to take advantage of DRIPs as well. DRIP shares issued into an ISA account remain within the ISA wrapper just as scrip dividends do.

A list of companies that have a DRIP scheme can be found on the Equiniti share registrars website at:

www.shareview.co.uk/Products/Pages/applyforadrip.aspx

Where companies offer neither a scrip dividend nor a DRIP, your stock broker may offer a dividend reinvestment scheme, automatically reinvesting the cash dividend into the relevant company’s shares. Again, the arguments for and against are the same as for scrip dividends and again any shares issued in this way remain part of an ISA.

Some brokers lump together dividends paid to several clients holding shares in the same company and buy new shares immediately. Others wait until cash builds up in each individual client’s account before buying. Aggregating cash in this way reduces dealing costs.

When you set up an online account you will be asked whether you want to have dividends remitted to your bank account or retained within the investment account. If you want your dividends to be reinvested automatically, check that this option is available, otherwise find another online broker.

If you are operating a traditional account with your broker, ask if this option is available.