Dividend reinvestment plans (DRIPs) allow shareholders to reinvest their dividends in the company by purchasing additional shares instead of receiving cash dividend payments. The majority of large com

The scenario described in which Globex Corp. plans to use the proceeds from its dividend reinvestment plan to repurchase shares of stock that it had previously issued is an example of a "new stock" dividend reinvestment plan. This is because the plan is providing newly issued stock to stockholders who choose to reinvest their dividends, rather than using existing stock that the company already has in its treasury. High levels of participation in a dividend reinvestment program suggest that stockholders would be better served if the firm reduced its cash dividends. This is because if a high percentage of stockholders are choosing to reinvest their dividends, it may indicate that they believe the company is better off using the funds to invest in its own growth and development, rather than distributing cash dividends. A firm is likely to stop using new stock DRIPs if it does not need additional equity capital. This is because the purpose of new stock DRIPs is to provide a way for the company to raise additional equity capital. If the company does not need that capital, there is little reason to continue offering the plan to stockholders.