| Stock Investment |
Provided in this area are links to articles that explain what Dividend Reinvestment Plans (DRPs) are, and how
you can begin such an investment plan in leading companies,
commission free, for you, your spouse, your children, and your family
newt. While immediately below, in laymen's terms, is a summary of what
we're doing and answers to frequently asked questions.
Following along and what to invest in. The Drip Portfolio is
easy to follow because each investment is being made steadily over a
twenty-year period (at least), meaning that money will be invested into
Intel and the portfolio's other stocks on a near monthly basis,
representing "new" investments at the current prices all the time. Anyone
can begin to learn from our investments via the daily columns at any time,
even five years after the port's launch. As long as we still believe in
our companies we'll hold onto them and add money to them each month.
Ideally, we'll never need to sell. As you begin your own investing adventure, remember that each decision
you make is your own. Make sure that you're steering the boat, not some
stranger whom you've never seen before and who goes by the ridiculous name
of "JimmyBoBob Joe," or "TMF Jeff," for example. Online you have all of
the information at your fingertips to begin making Foolish decisions, and
this portfolio aims to help you steer in the right direction with its
ongoing lessons, articles, and useful reference points.
How do I begin a commission-free purchasing plan? There are more
than a few ways to begin dividend reinvestment plans. You can find answers
to many of your questions on the options by clicking through the articles
to the right. Essentially, you can use a dividend reinvestment plan
service, you can use a discount broker, or, increasingly, companies offer
what are called "direct purchases" of stock from the company itself from
the beginning (most dividend reinvestment plans require that you own at
least one share of stock before enrolling, though, and that stock needs to
be bought in a traditional manner). Whatever you do, the objective is to
keep your starting cost as low as possible. Luckily, this is easy to do
with the options just mentioned and provided in the links to the
right. Criteria . For more on the criteria that
we look for in each stock that we finally decide to buy (buys are far and
few between -- they must be dominant companies representing consistently
growing value from the start, if possible). Direct Purchase Plans Pros
Cons
Dividend Reinvestment Plan / Optional Cash Purchase Plan
(OCP) (Again, remember that even though investors say DRP, short for Dividend
Reinvestment Plan, this name is a bit of a misnomer as they are really
talking about the Option Cash Purchase Plans where you can buy new shares,
not just the DRP where you reinvest dividends.)
If you need to own a share before you can become part of the plan,
what's a poor Fool to do? How can you get that first share? Thankfully,
there is a whole range of possibilities for a Fool to explore. We will
first lay out all of the basic elements that you need to get done and then
throw up a list of some of the possibilities.
Pros
Cons
Buying the Share A word about getting the share through a brokerage. Many beginning
Direct Investors make the mistake of thinking that if they just buy the
shares in a brokerage account, that will count toward setting up a
DIP/DRP. Unfortunately, this is not the case. To set up a DIP or a DRP,
you need to have the shares issued in a certificate in your name.
Depending on the brokerage, they will will charge you a flat-fee for
getting the certificate, although some have been known to do it for free.
(Apparently, some Dean Witter offices have specifically been very helpful
in this regard.) Without the share in a certificate in your name, you
cannot set up the DRP/DIP.
Contacting the Transfer Agent Finishing Up the Paperwork Is There An Easier Way? A Friend? Or Family Member? How Can They Help? A Service? Can A Service Help Me? Each of these services will transfer you into a DRP for one set fee
after filling out some minimal paperwork. NAIC has access to about 200 or
so DRPs, but you need to be a member of each non-profit organization to
take advantage of their low fees. First Share works by having new members
promise to transfer other new members into the plan at some future point
in return for getting transferred in now, but sometimes it can be a
problem if the member who was supposed to help you takes a vacation or
leaves town unexpectedly. MoneyPaper maintains access to 920 DRPs, for the
same fee, which is discounted for people who subscribe to their
newsletters.
A Helpful Summary
Fees Transfer? # of
Plans? Depends Yes Very Few $10-$100 Nope All Member +~$18 Yes ~500 Member +$7 Yes ~150 $15 or $20 Yes 920
Some companies actually
encourage individual investors to own shares by selling them to you
directly. Called Direct Investment Plans, more and more companies are
using these as a way to sidestep what they perceive as the high fees
charged by transfer agents to run a Dividend Reinvestment Plan externally.
(We compiled a list of more than 1,000 direct investment plans in Investing
Without a Silver Spoon.) These companies simply run the Direct
Purchase Plan from within, selling shares to the investor without ever
needing to deal with another party.
All Dividend Reinvestment Plans (DRPs) require that you own
one share before you get to participate -- otherwise they would be Direct
Investment Plans (DIPs). This is the most common form and they spring
historically from the infrastructure that companies set up to allow
employees to buy stock from the company (see History of
DRPs).
Obviously, one of the key things
that needs to happen is somehow the share needs to get bought for you.
There are a number of ways to do this, ranging from having a broker buy
you the share to using a service that specializes in supplying the first
share to you. The services that specialize in DRPs do a lot more for you
than just buying the share, as you will learn in a moment.
After you get the
share in a certificate in your name, you have only just begun. The
prospective Direct Investor needs to get the application from the Transfer
Agent used by the company to manage the DRP/OCP plan. A Transfer Agent is
kind of a middle man used by companies in order to facilitate the DRP
process in a very low cost setting -- at least for the company. You need
to find out the number for the Transfer Agent and call them to get an
application. If you do not have any kind of guide with DRP information,
calling the company's Investor Relations department to find out the number
for the Transfer Agent would give you that information. (Some companies
may even send you the forms directly, so don't forget to ask as long as
you have them on the phone.) Some transfer agents may not send you the
paperwork unless you are a registered shareholder, so don't forget to
register. Some companies are even forgoing certificates and going to a
complete, book-entry registration system for issuing shares.
After you get the forms
and you have your share certificate in hand, you fill them out and then
mail the forms to the company. The Transfer Agent will receive the
paperwork and then process it. This can take some time, specifically
because you are opening a new account. After you open the account and have
confirmation, you may want to consider mailing in the share as well to put
in the Transfer Agent's safekeeping program, which keeps track of all of
the shares for you. If you do mail the share you may want to consider
getting mail insurance as if someone else gets the mail, they could forge
your name on the certificate and cash it. Additionally, some plans will
not let you send in cash investemnts until after your first dividend has
been reinvested, while some may actually allow you to send in your first
investment with the forms.
Getting the certificate,
getting the Transfer Agent info, filling out the paperwork and getting the
DRP opened can turn into a rather long process. One way to avoid a lot of
this hassle is to avoid needing the certificate in the first place. There
are a couple of options here, ranging from finding a friend who is already
in the DRP you want to using a service dedicated to DRPs.
One
of the interesting features of a DRP program is that long ago they
designed a pretty easy way to transfer shares from one person to another
to facilitate giving gifts. The paperwork for most plans to transfer a
share is actually less involved than the paperwork to open a new account.
If you know someone in the DRP, simply have them contact the Transfer
Agent to get the proper forms to give shares to another person. Pay them
whatever your friend or family member asks for the share (within reason)
and then have them sign the paperwork and mail it in.
A number of
entrepreneurial minds realized early on that if they amassed shares in DRP
plans and then were to transfer shares to other people, they might be able
to make a little money and help investors at the same time. Thus the MoneyPaper's Temper of the Times
Service, First Share, and the National Investors Association Corp. (NAIC) "Own a Share of America"
Program were all formed.
This chart should illustrate the
ways to get involved in one of these plans with all of the pros and cons.
Direct Investment Plan
Brokerage Firm
First Share
NAIC
Temper of the Times
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