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Dividend Reinvestment Plans (DRIPs), offered by
about 1000 companies and closed-end funds, are programs which allow current shareholders
to purchase stock directly from the company, bypassing the broker and brokerage
commissions. Investors purchase shares with dividends that the company reinvests for them
in additional shares. Most DRIPs also permit investors to make voluntary cash payments
directly into the plans to purchase shares.
DRIPs have many attractions for individual investors:
Most companies charge no commissions for purchasing stocks through their DRIPs, and those
that do charge only a nominal fee.
More than 100 companies have DRIPs which permit participants to purchase stock at
discounts to prevailing market prices. These discounts are usually 3 to 5 percent and may
be as high as 10 percent.
Most DRIPs permit investors to send optional cash payments (OCPs), in many cases for as
little as $10, directly to the company to purchase additional shares. If your investment
isn't enough to purchase a whole share, the company will purchase a fractional share, and
the fractional share is entitled to that fractional part of the dividend. OCP gives small
investors the ability to buy attractive blue-chip stocks when they otherwise might not be
able to afford them.
Joining a DRIP is easy. Once you have selected a particular stock, check to see if it has
a DRIP. A directory is available in the updated version of my best selling book, Buying Stocks Without A Broker (available in bookstores or by calling 1-800-233-5922).
Also, contact the shareholder relations department of the company of interest to verify
that it has a DRIP.
Once you have identified a company with a DRIP, in most cases you have to become a
shareholder of record to enroll. This is an important point. You must have the stock
registered in your name, not brokerage or "street" name.
Once you are a shareholder of record, contact the company for a DRIP application and
prospectus. The prospectus provides all the details about the program, including fees, if
any; optional cash payment minimums and maximums; investment dates; and eligibility
requirements. Chances are, the company will probably contact you once it has your name as
a registered shareholder.
Charles B.
Carlson is the editor of the No-Load Stock Insider
and the DRIP Investor newsletters, the nation's
only newsletters devoted exclusively to dividend reinvestment plans (DRIPs) and No-Load
Stocks™. To find out more about the DRIP Investor newsletter, click here for your free
sample issue plus a list of No-Load stocks.
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