How to Invest in DRIP Stock

Not all stock trades need to go through a stockbroker. You can invest in a DRIP (Dividend Reinvestment Plan), though it is not the most popular way to purchase stock and not all companies offer them. This plan allows investors to bypass the broker and save a few dollars on the commissions paid. The challenge lies in creating your account and buying your first stock. Once you've done this, the rest is simple.

Define DRIP. DRIPs are programs run by the company that issues the stock and allow shareholders to reinvest dividends directly into the purchase of additional shares of stock. This is usually done without a fee or commission. More than 1,200 companies have DRIPs.

Purchase at least one share of stock through Investor Relations of the issuing company or through a broker. also is a good place to make a single share purchase. See Resources for a link.

Establish a DRIP account. Not all companies have DRIPs so be sure to check with Investor Relations before making your first purchase. Once you own your first share, however, call or email the company to request a copy of the DRIP plan prospectus. This will provide all the details you need in order to make a buying decision. It will also provide you with historical returns for the program. All DRIPs must have a prospectus as required by the Securities and Exchange Commission.

Contact the company to set up an account. The prospectus will provide information/instructions on the steps you need to take in order to set up an account. Set-up instructions vary according to the plan, so be sure to review the instructions carefully.