• We’re currently investigating an issue related to the forum theme and styling that is impacting page layout and visual formatting. The problem has been identified, and we are actively working on a resolution. There is no impact to user data or functionality, this is strictly a front-end display issue. We’ll post an update once the fix has been deployed. Thanks for your patience while we get this sorted.

Does anyone know about DRIPs?

O

Orsorum

Lifer
I am finding myself increasingly confused about this whole process. I would like to look into purchasing share(s) in a couple different companies and then enter into a DRIP program with each one, invest a little each month, etc.

For example, I already own 35 shares of Boeing. If I wanted to enter into a DRIP with Boeing, I would have to order a stock certificate (i.e. registering the certificate with Boeing) from my broker and then send that along with the necessary paperwork to Boeing.

But what if I don't want to do that... say, I want to invest in RAIT Investment Trust or United Industrial, neither of which I currently own shares in, I would have to buy at least 1 share through a broker, then have the broker send me that stock certificate, then send that with the necessary paperwork to each company, then I would be enrolled for the DRIP? This seems like a lot of commission and paperwork for a situation where it seems I should just be able to call the company directly and buy shares from them.

Or I could do something like this, which seems like a novel idea, except for their much smaller selection of companies.

If I did enroll in one of these programs, how would I access/control them? Would I list them under my existing broker, or would I have to list it with whatever transfer agent each company uses?

Thanks for any and all advice you can offer. I've read through the guides offered by the Motley Fool and a few other sites, and I'm still confused. It looks good on paper, but actually searching for companies and attempting to find information so that I can actually pursue one is much more confusing.


:Q I missed that title for almost 18 hours. :Q
 
you don't send the certificate itself in, but you do have to have at least one

my dad got me and my wife into drips about ten years ago, this is how he/we did it

he bought each of us 1 share in a company of our choice through his broker, i picked a water utility in new england, aquarion, and my wife picked disney

so his broker sent us each our certificate for 1 share and yes, with the fees/commissions, that 1 share cost about double the price of a single share, so that part of the DRIP process sucks

we stuck our certificates in our fire safe at home. we filled out all the paper work to enroll in the DRIP for our respective companies. then once a month we sent a check to the DRIP to buy more shares. they just keep an account and send you statements, just like any mutual fund, etc.

we had to liquidate both of our DRIP accounts a few years back due to some unusual circumstances, but it was easy and in the case of my DRIP, all purchases from the money i sent and from divident reinvestment we made at 5% below the market close price of the stock, so everytime i sent them $50 , i got $50.25 worth of stock in the company

they are good, in my opinion, especially if you find the ones that give you the discount on the stock (5%-10% used to be common, i don't know if that is still true)

good luck!
 
In case you didn't realize it, mutual funds like VFINX S&P500 also act like DRIPs with much less work -- just say to reinvest when you buy the shares (and the brokerage already has this set as the default).
 
Originally posted by: DaveSimmons
In case you didn't realize it, mutual funds like VFINX S&P500 also act like DRIPs with much less work -- just say to reinvest when you buy the shares (and the brokerage already has this set as the default).
Click to expand...

How do the fees with mutual funds compare to costs with DRIPs?
 
Originally posted by: Orsorum
Originally posted by: DaveSimmons
In case you didn't realize it, mutual funds like VFINX S&P500 also act like DRIPs with much less work -- just say to reinvest when you buy the shares (and the brokerage already has this set as the default).
Click to expand...

How do the fees with mutual funds compare to costs with DRIPs?
Click to expand...
It depends upon the plan. For example, my DRIP account with NCC has no fees and a 3% discount on reinvested dividends. On the other hand, we recently bought into GT. There is a $5 transaction fee on purchases.

When UPJ became PHA, they began a reinvestment fee on dividends reinvested. Instead of reinvesting the dividends and paying a fee, I took the dividend checks and then invested the proceeds elsewhere in my portfolio. Now PHA has merged with PFE and there are no fees. So, I'm back to reinvesting dividends with that plan.

I've been in DRIPs for 20 years and mutuals for about 19. Although DRIPs carry a greater risk because of the obvious lack of diversification as well as constraints on sales, from my experience, the rewards are much greater.
 
burnedout - if you feel like sharing a few of your secrets, how did you get started with your DRIP plans? The brokerage-certificate-enrollment plan, or a gift plan, or some other plan I'm not aware of?

Also, do you have any particular criteria you use when you select companies to enroll in? Do you have a master list somewhere of companies that offer no-fee DRIP programs? (I've found a good list of companies that offer DRIPS, but nothing that itemizes them by fees or no-fees)
 
Originally posted by: Orsorum
burnedout - if you feel like sharing a few of your secrets, how did you get started with your DRIP plans? The brokerage-certificate-enrollment plan, or a gift plan, or some other plan I'm not aware of?

Also, do you have any particular criteria you use when you select companies to enroll in? Do you have a master list somewhere of companies that offer no-fee DRIP programs? (I've found a good list of companies that offer DRIPS, but nothing that itemizes them by fees or no-fees)
Click to expand...
I'll be more than happy to share.

DRIPs are what I term as "grassroots investing". I was introduced to them through two different sources. One was a family member in Cincy, Ohio who worked at PG, while the other was an Army Captain I served with during a peacekeeping mission. At any rate, I joined the NAIC years ago. They provide a purchasing service for select company plans.

There are also a number of companies which sell direct without going through a service for that first initial share.

Check out Netstock Direct for lists of companies. As of late, fees have become what I would describe as an annoyance in some plans. There is another source on the web which lists companies allowing direct purchases without those first shares. If I find it, I'll link.

Now, I really can't give any advice on what to purchase. However, my personal preference has been brand names, banks and some with purely sentimental value such as HDI. Please use your own best judgement and definitely research each company.

I started investing around your age as an Army E-4. Believe me, when one combines time, patience, research and discipline with money in our society, a tremendous impact on life can be made further down the road.
 
It depends on the company. For example, GE requires you to first purchase x amount of stock from them if you don't already own any GE stock in your own name. You can just go to their webpage and print out a form and send in a cheque to them. After that, however much you want to invest in their DRIP plan is up to you. With IBM, they require you first own at least one share of their stock in your name. However, you do it is up to you--most likely contact a broker and either get some shares transferred directly to your name (if you already own some) or buy some shares in your name directly. Some companies require you to buy y number of shares each time you want to buy more directly from them.

Most companies though, require that you only own just one share in your name before you can put in the paperwork to participate in the plan--you'll have a shareholder ID. There are investment clubs out there where the members are willing to sell you just one share of any company you want to start a DRIP in. The only catch is that you agree as a member of the club to return the favor for someone else in the club at a later date. This is one way around having to buy a large number of shares at one time to start DRIPing if you don't have that sort of cash. You'll just have to pay for the paperwork to have the share transferred if you're doing the buying--this could still save you a lot of money in the long run anyway and could be less paperwork.

The easiest thing for a DRIP like portfolio might be to look into Sharebuilder.com. They automatically do dividend reinvestments.
 
Oh, with Sharebuilder you can also "DRIP" with companies that doesn't have DRIP plans because like I said, they automatically reinvest dividends of companies you own. They have quite a number of companies that you can buy stock in, but not the entire market.
 
Originally posted by: Orsorum
Originally posted by: DaveSimmons
In case you didn't realize it, mutual funds like VFINX S&P500 also act like DRIPs with much less work -- just say to reinvest when you buy the shares (and the brokerage already has this set as the default).
Click to expand...

How do the fees with mutual funds compare to costs with DRIPs?
Click to expand...
Automatic reinvestment of mutual fund dividends is free even for funds like Vanguard's that have fees for normal purchases.
 
Here is the NAIC list - PDF

Now remember that the NAIC is a very conservative investing organization. I guess one could say that they are themselves extremely "grass roots" as well. You aren't required to belong to a local chapter. I never have been a local member. There are a number of companies in the "low cost" plan that have allowed NAIC member purchases for over 20 years. It is a trip seeing Johnson Controls and ITT on the list after so many years. The old Chase Manhatten bank was another good one. They had some real sweet discounts on purchases and reinvestments back in the day.

Like I said, do the homework and check out the companies offering direct purchases without going through the NAIC or another service. PG is one.
 
Does anyone about DRIPs?
Click to expand...

The first question I would have is why. How do the underlying equities fit into your plan? Do you pay more than 27-30% in taxes? Who does your taxes? When are you planning on spending the money? How much do you want to invest and what do you expect it to do for you? What is your risk tolerance?

Drips are a great easy way to participate in mostly large cap stocks. They help to discipline you to a long term approach because they feel less liquid and market swings don't hurt as much because you don't necessecarily see them. keep good records in a DRIP because you are responsible to the IRS for accuracy. It used to be you could make up a reasonably accurate number but with all of the new rules, antimoney laundering aspects and other parts of the Patriot act, your bulls**t numbers may be coming back to haunt you.


You can use a mutual fund to accomplish relatively the same thing with ease and likely less fees in the short term, 5 years or less probably although I don't care to do the math right now. Either way the fee difference would be small, If you're looking at a 50K investment over 15 years the fees would probably be the equivalent of a nice dinner out with your wife/signifigant other so I wouldn't focus too much on fees.

Remember that there are plenty of funds with no up front or back end fees. No load funds still have the cost of administering and managing the money so depending on the type of investments, which determines the cost of management, your total operating expenses on a quality no load fund should fall between .15% for a passively managed fund and 2.35% for soup to nuts management. Turnover, which is sales and purchases of investments inside the portfolio, will creat cap gains/losses each year which may or may not have a negative effect. You need to understand your unique tax situation in order to make this decision or consult someone who can.

If you do pay a lot in taxes, as a percentage of your income, then a DRIP may be a better route as you can ensure most gains are/will be Long Term Cap Gains which currently are taxed @ 15% although that may disappear in 2007 with the sunset provision of the EGTRA, economic growth tax ......act.

If you do have a tax issue then you may be more suited to have a professional money manager handle the $ for you. Depending on the portfolio style you would be looking at anywhere from .15% - 2.5% annual fee as a percentage of assets usually charged on a quarterly basis but the minimum invested would need to be $100k depending on the firm. I am unaware of any who will accept less than that, the normal minimum is $250k for this type of managed money to make it cost effective for you and the money manager.
 
Originally posted by: DaveSimmons
Originally posted by: Orsorum
Originally posted by: DaveSimmons
In case you didn't realize it, mutual funds like VFINX S&P500 also act like DRIPs with much less work -- just say to reinvest when you buy the shares (and the brokerage already has this set as the default).
Click to expand...

How do the fees with mutual funds compare to costs with DRIPs?
Click to expand...
Automatic reinvestment of mutual fund dividends is free even for funds like Vanguard's that have fees for normal purchases.
Click to expand...

What I was thinking of is the mutual fund expense ratio; even though you can find good index funds with an expense ration of 0.20%, that's still a 0.20% drop in your overall return. However, that could also be read as a 0.20% price for diversification and some amt. of active management.
 
forkd - thank you immensely for these words. I am at the moment just a poor college student trying to put his extra money to the best possible use. I'm trying to save as much as I can before being forced to pour the rest of my money into school/family/etc. I am also trying to look ahead 50 years or so to my retirement, how I can best ensure that stability along with a good-sized nest egg I can pass down to my children.

I have neither the time or the required money to ask a professional money manager. I might eventually go to one for advice, but for now, I am going to find a basic asset mix that works and stick with it. The reason I'm looking into DRIPs is that I need some avenue for additional investment that doesn't cost me a relatively substantial amount of money (i.e. $200 a month, don't want 12% of that eaten up in commission).

I don't pay much in taxes - I haven't paid any period for the last two years, actually. This will most likely change in the next couple years (if I go to law school), as I'll have to work during the summers and probably on weekends to help pay my way. I want to start reducing that liability now so that when I do start having to account for more income, I already have a mindset and a portfolio that deals effectively with taxation.
 
Originally posted by: Orsorum
Originally posted by: DaveSimmons
Automatic reinvestment of mutual fund dividends is free even for funds like Vanguard's that have fees for normal purchases.
Click to expand...

What I was thinking of is the mutual fund expense ratio; even though you can find good index funds with an expense ration of 0.20%, that's still a 0.20% drop in your overall return. However, that could also be read as a 0.20% price for diversification and some amt. of active management.
Click to expand...
True, for Vanguard's VFINX S&P 500 fund the annual expense is 0.18%, but you (sort of) get DRIPs for every stock in the S&P500 that pays dividends with a single fund purchase. And if you set up an account directly with Vanguard.com you pay no trading fees to buy the collection of 500 stocks. Saving on stock trade fees could pay for several years of expense fees. Your risk also goes way down compared to putting the same money into 2-3 individual stocks.
 
Originally posted by: DaveSimmons
True, for Vanguard's VFINX S&P 500 fund the annual expense is 0.18%, but you (sort of) get DRIPs for every stock in the S&P500 that pays dividends with a single fund purchase. And if you set up an account directly with Vanguard.com you pay no trading fees to buy the collection of 500 stocks. Saving on stock trade fees could pay for several years of expense fees. Your risk also goes way down compared to putting the same money into 2-3 individual stocks.
Click to expand...

Also very true. Please don't misconstrue my purpose - I plan to use mutual funds as a large portion of my overall portfolio. But there are a few high quality companies I would like to start investing money in directly, and keep investing over time.
 
Originally posted by: Orsorum
Also very true. Please don't misconstrue my purpose - I plan to use mutual funds as a large portion of my overall portfolio. But there are a few high quality companies I would like to start investing money in directly, and keep investing over time.
Click to expand...
That makes perfect sense, I've just personally never had the interest in researching individual companies deeply enough to feel comfortable investing in them that heavily.

Buying and holding funds lets me get on more quickly to important things like watching DVDs and neffing 🙂
 
Bah, I've got a DRIP in Intel started like 7 years ago. I put some money into it every once in a while, but not much overall. I woudl consider a drip a long term investment... too many hoops for selling stocks and nothing particularly special about performance (most drips are a part of large, blue chip companies.... at least as I've seen them).

If you're in college looking to do something with savings, wouldn't a short-term CD be a better idea ?
 
Originally posted by: ChefJoe
Bah, I've got a DRIP in Intel started like 7 years ago. I put some money into it every once in a while, but not much overall. I woudl consider a drip a long term investment... too many hoops for selling stocks and nothing particularly special about performance (most drips are a part of large, blue chip companies.... at least as I've seen them).

If you're in college looking to do something with savings, wouldn't a short-term CD be a better idea ?
Click to expand...

I already have 3 of those. 🙂
 
You must log in or register to reply here.

TRENDING THREADS

Back
Top