How to Buy Drip Stocks

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Dividend reinvestment programs or DRIP provide a simple, lifetime way to accumulate stock in a company without commissions or regular attention to dividend payments after the initial purchase. In most cases purchases begin with a single share and may be added to at any time. There are variations among companies that administer DRIP plans. There are over 1200 companies that have active plans.

Contact the National Association of Investors Corporation and establish membership. For the price of one share of stock and a small one-time registration fee of $7 you can establish a DRIP stock position. There are other DRIP organizations such as First Share and One Share that can be used to establish a position. It is not recommended to use a broker as their fee structure is not conducive to small stock holdings.

Visit the company website of the stock you wish to purchase and read or download the DRIP application. Call or write the company and request a copy of the DRIP plan prospectus and enrollment form through the corporate services department if it is not available on-line. The prospectus will outline the schedule for optional cash purchases and reinvestment of dividends, fees or commissions involved with buying or selling shares.

Diversify your holding among blue chip stocks at first with dividends that should grow over time. Be aware that some companies allow only full dividend reinvestment, partial reinvestment or cash payment options in order to buy more shares. Some companies allow the convenience of regular debit transactions from your checking account once the DRIP account is opened. If ownership of the DRIP is intended for children be certain to have a guardian agreement until the children are 18 years old.

Save all paperwork including any stock certificates in a safe place. It is expensive and time consuming to replace lost certificates. Most companies employ record keeping through electronic transfer and ownership is shown through a master certificate that you keep. DRIP programs may seem bothersome to begin yet once opened effectively run by themselves thereafter with little or no cost. It is difficult because of fee structures and upfront costs to employ DRIP programs into one's IRA account.

Sell your DRIP position by reading the prospectus and giving the trustee adequate legal notice. This may take up to two months to complete. Remember that all DRIP transactions take place on one day of the month, usually the 15th of the month or the closest day before the 15th. Remittance will usually be made with seven business days.

Tips

  • Decide what your reinvestment and new cash plans will be before committing to a DRIP program. It is time consuming and expensive to reverse or change instructions once the trustee has received them.

Warnings

  • There are many plans for DRIP investors. However DRIP plans still represent only about 20 percent of the registered stock companies traded on the major exchanges.