What is a DRIP?
A company sponsored DRIP is a dividend reinvestment plan offered by a public company to promote long term stock ownership. The plan typically allows for an investor to invest and reinvest dividends in the company’s stock. DRIPs are usually promoted for their low ownership costs and convenience of allowing investors to invest small amounts of money on a regular basis.
How do I invest in a DRIP?
Get the highlights of the DRIP plan to see if it might provide you with the lowest holding vehicle for your investment. Read the DRIP prospectus carefully and verify the fees and benefits of the plan. Follow the instructions in the DRIP’s prospectus or company web site to enroll in the plan.
If the plan requires 1 share to enroll how do I get started?
If a DRIP requires stock ownership prior to enrolling in the plan, most of the DRIP cost benefits are eliminated if you don’t already have access to shares. This is because you must usually make an initial investment through a 3rd party brokerage and then issue the stock in certificate form (which adds additional expense). We recommend looking closer at a low cost brokerage with free dividend reinvestment to see which holding vehicle makes the most sense for your investment style.
What are some low cost brokerages that offer free dividend reinvestment?
Sharebuilder, Zecco, TDAmeritrade, Tradeking, optionsXpress, and Optionshouse are all low cost brokers that offer free dividend reinvestment.
What is a DSPP?
DSPP stands for Direct Stock Purchase Plan. It is a common name for a DRIP that also offers the benefit of buying additional stock directly from the company.
What should I look for in a DRIP?
Depending on your investment style, compare the company-sponsored DRIP to brokerage offerings and select the holding vehicle that will offer you the lowest cost of ownership. For instance if you are making a large lump sum investment – you probably should look closer are using a brokerage with free dividend reinvestments and that allows you better control over trade execution. If you are interested in investing small amounts of money on a regular basis – take a closer look at the company sponsored DRIP to see if it provides you with lower investment costs compared to a brokerage account.
Better DRIP plans sponsored by companies will offer you the ability to make an initial investment in the company stock, free dividend reinvestment, no account setup fees, and less than average selling costs.