Dividend Reinvestment Plans, or DRIPs, are programs that allow individuals to buy stock directly from the company, with dividends from the stock being automatically reinvested into more shares. Here are some popular companies that have DRIPs and also see the Wikipedia entry on DRIPS here.
DRIPs often charge no commissions, so if you set up a DRIP for General Electric (GE) and committed $50 per month, every penny of that would go towards buying $50 of GE, even if it meant buying a partial share. Dividends also get reinvested for free. The main startup costs involve buying one share through a broker and then transferring ownership to your name. This all made them a good alternative to using a broker and paying for every trade.
Do it yourself? Start with less than $100? No commissions? Sounds like something I’d go for. In fact, I don’t participate in any DRIPs. The main reason is that I’m really not interested in buying any individual company stock right now. DRIPS are meant as a very long term commitment, and I just don’t trust any one company to perform well for the next 30 years. On top of that, the accounting required to keep track of the cost-basis for all your shares sounds like a nightmare. Besides, I think there are better alternatives out there:
With just $50 a month, these days you can go through a company like T. Rowe Price or TIAA-CREF and invest in a low cost mutual fund that is diversified across hundreds of companies. It’s so easy a caveman could do it.
By Jonathan Ping | Investing | 4/10/07, 12:09pm