How to Invest in a Dividend Reinvestment Plan (DRIP)

The Best Way to Invest in a Dividend Reinvestment Plan (DRIP)
by Zig Noda

A Dividend Reinvestment Plan or a DRP or DRIP as they are commonly called are direct stock purchase plans where you purchase shares directly from the company instead of through a stock broker. The name comes from the fact that any dividends that are earned on the shares you own are re-invested to purchase more stock rather than issued to you in the form of a quarterly dividend check. There are 3 main advantages when investing through a drip:

1. Dividends are automatically re-invested thus buying you more ownership of shares.

2. The cost to participate in drp’s are minimal usually just around $25 to $50 dollars a month. So they are great for small investors and beginning investors. As well as seasoned long term investors that want to invest regularly in a company directly.

3. You can buy a little as one share. There are usually no transaction fees or minimal transaction fees per purchase so you can also save on brokerage commissions.

DRIPS are great vehicles for those wish to purchase shares on a long term basis.

One of the minor drawbacks of DRIPS is that the company decides when to purchase your shares. Sometimes also there is a fee for liquidating your shares. So therefore DRPS are not good for traders. They are an excellent and hassle free vehicle for long term investors in Blue Chip companies.

Most of the companies that offer drips are larger, well established companies that offer regular quarterly dividends, such as GE, Proctor & Gamble, IBM, McDonalds. Utility companies such as Hawaiian Electric are great companies to take advantage of DRIP investing.

You don’t need to subscribe to a service or invest in a book to learn more about DRIPS. Although you may find some helpful and useful information in these. You can start participating yourself – directly. It’s simple. Here’s how…

The best way to participate in a Drip is to contact the company directly and ask for their Investor Relations Department. You can also usually find this information directly on the Company’s website. For example, in visiting the site of Hawaiian Electric Company above, there is a link for investor relations and clicking on that link takes you to shareholder services. From there you’ll find all the info and forms needed to start. You can also call the company you are interested directly, ask for investor relations or shareholder services and they will mail you a package to you.

Investing in drips are becoming more and more popular since people want to take more control over their investments, and cut out the middleman such as a broker. They are becoming so popular that even brokerage firms are now offering DSPs or Direct Stock Purchase Plans and DRIPS to their customers. However, if you go this route, it defeats the purpose of participating in a DRIP. Since you would be paying the broker fees in most cases.

That’s all there is to it…make a list of the top 5 or 6 companies that offer regular divends that you are interested in owning long term. Call them or contact them via the web and request more info. Read each company’s DRIP policies and select the one(s) you feel most comfortable with, and start investing in a DRIP yourself. It’s never too early or too late to start investing. Go for it!

*DISCLOSURE: This is not a solicitation to buy or sell securities. These are NOT recommendations to buy or sell stocks or to invest or trade in any stock, or any other financial instruments. The information above is not intended to offer any professional investing or trading advice. The author and this website are not compensated by any of the companies mentioned to promote their stocks. These are just personal opinions. When investing or trading in any financial instrument, always excercise extensive due diligence, and investigate any investment or trade completely prior to commiting any money. Consult with a financial professional. Know your risk and understand that any financial trading and investing inherently involves RISK, and with this risk there is a potential to lose a substantial amount of money.

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