Because DRIPs, by their nature, encourage long-term investment rather than active trading, they tend to have a stabilizing influence on stock prices.
DRIPs have become[citation needed] popular means of investment for a wide variety of investors as they enable them to effectively take advantage of dollar-cost averaging with income in the form of corporate dividends that the company is paying out.
This way, the investor is guaranteed the return of whatever the dividend yield is, but he or she is also subject to market risk due to the price fluctuations of the stock.
In the past, this meant having to keep stock certificates as proof of ownership, but now most plans are in paperless, "book-entry" format.
There are many no-fee versions of DRIPs, SPPs and DSPPs which are an efficient way to build holdings over time by making small regular investments on a dollar-cost averaging basis.
This assures that the investor can accurately calculate the capital gains tax when any shares are sold, and document cost basis to their government if requested.
Further complications arise if the investor periodically buys or sells shares, or if the company is involved in an event requiring adjustments to cost basis, such as a spin-off or a merger.