DRIPs Explained
A Dividend Reinvestment Plan, or DRIP, is an investment tool by which investors can purchase shares of stock directly from a company on a regular basis and reinvest the dividends from those shares without the use of a broker.
- Dollar Cost Averaging: »
DRIPs allow you to invest a specified amount of money at regular intervals. Doing this allows you to buy more of a stock when prices are low and less when prices are high.
More › - Reinvest Dividends: »
DRIPs also allow you to reinvest the dividends that you receive, from dividend-paying stocks, in additional shares of the company while avoiding many of the costly fees and commissions associated with investing.
More › - Avoid Commissions & Investing Fees: »
The best DRIPs have no charges or fees associated with them. Others may charge de minimus fees for the purchase of additional shares or reinvestment of dividends. These fees generally pale in comparison to those charge by brokers.
More › - DAutomate Investing: »
DRIPs help you automate your investing. Once you've set up your DRIP account, you're good to go.
More ›
- Do You Want to Control Your Own Financial Future? »
- Are You Tired of Paying Excessive Brokerage Fees? »
- Do You Have a Limited Amount to Invest Each Month? »
- Do You Prefer Dividend Paying Stocks? »
DRIPs are ideal for investors who want to maintain control of their investment portfolios while minimizing investment fees. Investing with DRIPs is possible for as little as $10/month.
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.
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 non-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.
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
DPP “Direct Purchase Program” refers to the provisions of a company’s DRIP which allows shareholders to purchase additional shares of stock directly from the company via its transfer agent, in addition to having dividends reinvested automatically. In the early days of DRIPs, an investor had to be a registered shareholder of one or more shares of the company’s stock before the investor could enroll in a company’s DRIP. Today, companies offer DPPs through their transfer agents that allow investors to participate in a company’s DRIP program without previously owning one or more shares. These options, however, can become cost prohibitive as most have minimum initial investments of $200 or more plus an enrollment fee. Many find that it is much more cost effective to become a shareholder first and then enroll in the company’s DRIP/DPP on their own.
There are several ways in which you can purchase your first share, including:
- a company’s direct purchase option;
- a discount stockbroker; and
- our First Share program.
Direct Enrollment Option:
The direct enrollment option offered by many companies is convenient; however, in most cases you will be required to make a minimum initial investment of $200 or more, plus pay an enrollment fee of $15 or more, depending on the company.
Discount Brokerage:
A discount brokerage such as E*Trade will require an initial account balance of $500 or more, a trading commission of $9.99 per trade and a $75 stock certificate request fee. The stock certificate request fee is essentially the cost of registering the stock in your name. This is required to sign up for a company’s DRIP plan.
First Share Program:
With our program, you will pay one annual membership fee (regardless of number of referral requests), a small referral request fee and a small transaction fee to the seller.
| First Share Program Best Option | Company Direct Enrollment Good Option | Discount Broker1 Worst Option | |
|---|---|---|---|
| Membership Fee | $30/year | None | None |
| Minimum Initial Invstment/Account Balance | None | $200+ | $200 |
| Certificate Fee | None | None | $75 |
| Trading Fee/Referral Fee2 | $10 | $15+ | $9.99 |
1. e*trade.com
2. FirstShare.com sellers may charge an additional fee for transfer costs
Once you have purchased your first share and have completed the transfer process to register the share in your name, it’s time to establish your DRIP account. For this step you will need to contact the company’s transfer agent, either by mail, phone or by visiting the transfer agent’s website. Our company profile pages display the mailing address and phone number for each company’s transfer agent. Most users, however, will find it easier to sign up for the company’s DRIP plan through the transfer agent’s website. Below are the website links for the four largest transfer agents.
Computershare
BNY Mellon
Wells Fargo
American Stock Transfer & Trust Company
Some companies, such as The Walt Disney Company, act as their own transfer agents and you’ll need to visit that company’s website directly to establish a DRIP account.
