DIVIDEND REINVESTMENT PLANS AND NO-LOAD STOCKS

What do leaky faucets have to do with personal finance and investing? No, it's not what's going on when the market's falling and all the money is leaking out of your hard-earned unrealized capital gains. It's a way of investing.

Many companies, and the list is growing, offer what are called dividend reinvestment plans or, DRIPs, hence the leaky faucet attention-getter - it got you here, didn't it??!! Some also have a feature which pins the name no-load stock on it.

A DRIP works like this - you own stock in a company that pays a dividend. You can call them or their transfer agent and get a prospectus (there's that hated word of Wall Street again - but the companies have to keep the legal eagles happy) and enrollment form. When you send this in, the company will then, instead of sending you a check for your dividend, invest the money in additional shares of the company, much like what a mutual fund does when you tell them to reinvest distributions. The company keeps a record of your shares in book-entry form, including fractional shares computed out to as much as four decimal places. Some companies will even let you send in any certificates you have for safekeeping at no charge and make monthly or even more frequent additional purchases of shares. These plans vary all over the place in the features they offer and what, if any, FEES are involved. I would evaluate fees in much the same way you might evaluate fees and loads charged by mutual funds.

Great idea!! But, what if I want in a DRIP and I'm not a stockholder. Well, there's several ways in. The so-called No-Load stocks are those companies who will let you buy your first share(s) directly from the company without going through a broker or anyone else. This feature will be included in the details of the prospectus - things like minimum initial amounts (As low as $50!! in some cases), deadlines for getting the money in, etc.
Some companies require you to own at least one share in your own name before you can get in the DRIP. You can use a number of services or a discount broker like Kennedy Cabot to buy one share. I have a subscription to a newsletter called The Moneypaper. The website has a list of companies with DRIPS and they sell a directory listing every company with a DRIP. They have a service which, for $15 or $20 plus the price of one share of stock, will buy the share and enroll you in the DRIP. You can visit stockholder.com. They have a complete list of 800 numbers of all companies you can buy shares in directly from the companies. I also have Charles Carlson's books, How to Buy Stocks Without a Broker and No-Load Stocks. (commercial break here - you could buy these at our sibling website affiliated with Amazon.com) All of the individual stocks I have in my portfolio got there through a DRIP I enrolled in directly with the company or through The Moneypaper's service.

Ok, now which companies should I invest in? Well, by the time you have surfed all the pages of this website, we hope you will have some tools to help you determine that. We will tell you what we believe the advantages and disadvantages are to this type of investing.

ADVANTAGES

Invest in a company's stock with as little as $50 to open an account.
Reinvestment allows you to compound your return by leaving the money in the plan.
Monthly automatic investment plans (just like mutual funds) let you invest "painlessly".
Monthly plans let you take advantage of the investment tool known as dollar-cost-averaging. See our page on this subject.
Company holds shares for you. No risk of loss of certificates.
In most plans, there are NO fees for any transactions you do, or the fees are minimal.
Some companies give discounts from market price when you make cash purchases.

DISADVANTAGES

Less control over the day you make purchases, sales or at what price.
Fees, more fees, and nothing but fees. Read your prospectus carefully. Some plans have become totally onerous in their fee assessments.
A few plans have very high minimum share or dollar requirements to get in. You're better off with a discount broker.

Let us know your thoughts on this subject - tell us if you would like us to add anything, or if we left anything out...thanks for listening...and here is...OUR E-MAIL LINK

Rainbow

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