DIRECT INVESTMENT PLANS (DRIPs)

What are DRIPs?

Direct Investment Plans (DRIPs) have been around since the early 1960s. They are offered by more than 1000 companies and make it possible for individual investors to invest in public companies without going through a stock broker.

Although many of these plans provide the advantage of no-fee investing, they are not widely known and used. Information about their availability is not advertised and the process of becoming enrolled is not widely understood.

Why would such an advantageous opportunity go unnoticed by the public?

When "dividend reinvestment plans" (as they were called in the early 1960s when they were first organized) were approved by the SEC the conditions prohibited the companies from advertising the plans and usage was limited to people who had shares registered in their own names and not in "street name." (When investors buy shares through a broker, the shares are typically held in the name of the broker.)

In 1984, The Moneypaper, a monthly newsletter for the self-reliant investor, discovered that such plans were available. It quickly recognized that DRIPs made it possible for small investors to take advantage of risk-reducing strategies that were until then only available to wealthy investors. Since then, The Moneypaper has focused on these plans as a way to level the playing field so that smaller investors could enter the market without excessive risk.

Confusion Exists About the Name of Direct Investment Plans

"Dividend Reinvestment Plan," "Direct Investment Plan" and "Direct Stock Purchase Plan" are all DRIPs. Those three terms all describe investment plans offered by companies to enable investors to buy shares directly without going through a stockbroker. The only important distinction for investors is whether the plan levies ongoing fees.

Dollar Amount Purchases (Not Share Purchases)

Unlike traditional investing, DRIP investing is based on investing dollar amounts. You purchase as many whole and fractional shares as the amount you invest entitles you to--based on the price of the stock on the investment date. Each DRIP determines its own investment schedule. Some DRIPs only allow investments once each quarter, whereas others invest monthly, weekly, or even daily. The frequency of investing and the first investment opportunity for each DRIP are shown at this site. Full access to this site is included for subscribers to Full Website Access.