What are DRIPs and DRPs?
DRIPs or DRPs are Dividend Reinvestment Plans through which companies allow their shareholders to reinvest dividends and
purchase shares without a broker (direct stock purchase plans). The money you save on brokerage commissions is extra
money for you to invest in your portfolio.
Buying Stocks without a Broker
For years many corporations have offered shareholders the opportunity to reinvest dividends and purchase shares without
having to buy through a broker or pay brokerage commissions. Because of SEC rules these companies may not advertise
these programs to non-shareholders, unless the company goes through the cumbersome and expensive process of filing with
the SEC for permission to sell shares to no-shareholders
Brokers rarely tell clients about the programs because the programs provide no compensation for brokers.
These plans allow shareholders to invest amounts from as little as $10 to as much as $120,000, without paying brokerage
commissions. As a shareholder you may participate in a company's plan by sending the amount you desire to invest to the
company's DRP administrator. The administrator purchases shares on your behalf on the investment date specified by the
company's plan and holds the shares in an account for you. The funds you invest will be used to purchase full and fractional
shares of the company.
DRIPs allow you to take advantage of a simple long-term investment strategy which successful investors have used for
decades: Dollar-cost averaging. Dollar-cost averaging is a strategy in which you invest a fixed amount at regular intervals
over an extended period of time. By investing the same amount at regular intervals your investment moneys will purchase
more shares when the market price is down and fewer shares when the market is up. Over an extended period of time the
average price per share will be less than the price of the shares if purchased all at once.
Most companies require that you own a minimum of one share to participate in their direct stock purchase programs. The
First Share Program is a simple low-cost service which allows members to purchase the initial share to qualify for each
company's program