A Dividend Reinvestment Plan (commonly referred to as a "DRIP") is a plan that allows you to purchase shares of stock directly from a company. The company, acting as the plan agent, purchases shares of their stock on your behalf and holds the stock in your name. When dividends are paid, the funds are automatically reinvested to purchase additional shares of stock on your behalf.
Most plans require an intitial purchase of anywhere from $25 to $1,000 to open your account. Other plans require you to already own shares of the company to be eligible for their DRIP, requiring you to make your initial purchase through a broker; however, the NAIC offers a low-cost investment plan that allows you to buy your initial shares through them (the NAIC has joined the DRIP's of many companies and, if you are a member of the NAIC, you can start your own DRIP account through them) There is small setup charge for this service of $7 per company - very reasonable!!!
In most cases, you will not receive stock certificates for your investments. Most companies hold your shares, in your name, in "safe-keeping." You can continue to make contributions to your account and they will be invested on a regular schedule (weekly, monthly, quarterly, etc...) as outlined in the plan prospectus. It is recommended that you purchase up to 100 shares in a company and then start an account with another company. The commissions you save on your purchases will accrue and add substantial profits to your portfolio over time!!!
A selection of companies that offer a DRIP.
Here is short list of some well-know companies that offer Dividend Reinvestment Plans. These links connect to the corresponding company web site and, if available, will take you directly to the page that deals with DRIP's. Make sure you read all available material and request any additional material that is available. The prospectus for each plan will list fees, when contributions are invested, minimum investments, additional contributions and how to enroll in the plan. Have fun!!!
AFLAC
American General
Ameritech
Amoco
AT&T
Beneficial Corporation
Colgate-Palmolive
John Deere & Company
Diebold
Dow Chemical
General Electric
General Motors
GTE Corporation
Hannaford Brothers
Home Depot
Intel Corporation
Kellogg Company
McDonald's
Mobil Corporation
J.P. Morgan
Motorola
Norwest Corporation
Pepsico
Pioneer Hi-bred International
Procter & Gamble
Quaker Oats
Sears
Texaco Inc.
Volvo
Wal-Mart
Wendy's International, Inc.
Westinghouse
Whirlpool
In addition to these companies, many more companies offer DRIP's. For a more comprehensive list of these companies, visit this Directory of DRIP's.
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