Some DRP Program Terms You Should Understand:
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What is a Transfer Agent?
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When you enroll in a DRP program, you do it through the company or through the Transfer Agent the company hires to administer their program. Some of the major transfer agents include First Chicago Trust Co., Bank of New York, Boston Equiserve, and ChaseMellon. For our purposes, the basic role of the stock transfer agent is to administer our DRP Program. They provide a broad range of services including:
- Transfer and registration of securities.
- Dividend disbursement and tax reporting.
- Direct Stock Purchase (DSP) administration.
- Dividend Reinvestment Plan (DRIP) administration.
- Annual shareholder meeting services.
- Shareholder Relations.
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Direct Stock Purchase (DSP)
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DSP plans are DRP programs that offer the option to enroll without being a registered shareholder. You can purchase the first share of stock directly through the company and the transfer agent.
Shares purchased through these plans are held in book entry form by the transfer agent. The book entry form of ownership allows you to own shares without having physical stock certificates in your possession. You get a periodic statement of your account that reflects the number of book entry shares registered in your name and held by transfer agent.
Book entry ownership eliminates the problems associated with paper certificates. You get the benefits of of not having to safely store the certificat. Book entry shares also eliminate the need to physically transfer the stock certificates when you decide to sell or transfer ownership of the stock.
You get the typical benefits of any DRP program. It is a convenient and simple way to purchase shares. You will be able to reinvest all or part of your dividends, and you will be able to make additional Optional Cash Purchases (OCP), also called voluntary cash purchases, by check or by automatic withdrawal from your bank account.
The transfer agent can provide you with a "Prospectus" and enrollment form. The prospectus will describe the details of the plan, including the minimum initial investment and/or minimum number of shares to enroll, minimum and maximum Optional Cash Purchases, and the fees associated with buying and selling shares in the plan. Drop us an e-mail if you need contact information to get the prospectus.
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Dividend Reinvestment Plan (DRIP)
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To enroll in a conventional Dividend Reinvestment Plan (DRIP), you must be a registered holder of at least one share of the company's stock. If you are not yet a registered owner and you wish to enroll in the company's plan, you would normally purchase the initial share(s) from a stock broker. Have them issue a stock certificate registered in your name and then contact transfer agent for an enrollment form. The additional shares purchased through the plan will be held in book entry form by the transfer agent.
Book entry ownership eliminates the problems associated with paper certificates. You get the benefits of of not having to safely store the certificat. Book entry shares also eliminate the need to physically transfer the stock certificates when you decide to sell or transfer ownership of the stock.
You get the typical benefits of any DRP program. It is a convenient and simple way to purchase shares. You will be able to reinvest all or part of your dividends, and you will be able to make additional Optional Cash Purchases (OCP), also called voluntary cash investments, by check or by automatic withdrawal from your bank account.
The transfer agent can provide you with a "Prospectus" and enrollment form. The prospectus will describe the details of the plan, including the minimum initial investment and/or minimum number of shares to enroll, minimum and maximum Optional Cash Purchases, and the fees associated with buying and selling shares in the plan. Drop us an e-mail if you need contact information to get the prospectus.
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Optional Cash Purchases (OCP)
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Optional Cash Purchases, also called voluntary cash investments, are offered by all DRP Programs. They provide you a convenient method of purchasing additional shares of stock directly through transfer agent. All plans have minimum and maximum investment requirements and there may be fees for processing the investment. Again, get the prospectus - it will detail the fees.
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Automated Investments
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Many plans offer the option of electronic debiting. You can specify a monthly investment amount (OCP) to purchase additional shares of stock and the transfer agent will automatically debit your checking or savings account each month. If the investment date of the specific plan is less often than monthly, the automatic debit will be adjusted accordingly. This allows you to invest a specific amount on a regular basis without conveniently. You don't need to write and mail the check each month. It may also help you to be more disciplined. Not all companies offer this option, the Prospectus will answer that question.
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Safekeeping of Stock Certificates
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Many plans offer the option of holding you physical stock certificates safekeeping. These shares are deposited into your account and held in your book entry position. With safekeeping, you eliminate the worry of safeguarding physical certificates. The deposited shares have all the benefits of shares bought through the DRP Program. You can be withdraw or sell them at any time and the dividends can be reinvested.
To deposit shares into your plan account, send your unendorsed certificate(s) to the transfer agent. Include the tear-off form from your statement and a brief letter of instruction.
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Withdrawing Stock Certificates
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You can have the transfer agent issue you a stock certificate for any or all whole shares that you accumulae in your plan account. Certificates cannot be issued for fractional shares, they will sell fractional shares and issue you a check for the proceeds. You can request a certificate withdrawal by calling or send in the tear off form on your account statement. Transfer agents differ in the requirements, so check with them before taking action.
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How do I Sell DRP Stock?
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Most plans allow you to sell part or all of the shares held in your plan account. You can initiate this action by telephone or by sending in the tear off form that comes with your statement. Again, this option differs by company and transfer agent. So check it out first. The sale may occur the day you request the action or it may take several days, depending on the company and the transfer agent. This option and any fees associated with it will be described in the prospectus.
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Gift Transfers
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Many Direct Stock Purchase Plans allow you to give shares to others, some charge a fee for this service. When the transfer of ownership is completed, the recipient is enrolled in the DRP Program. They will get an account statement showing the transfer of those shares. Transfer agents may also provide a non-negotiable gift certificate with the account statement so you can present it to the recipient. You can use this opion to set up a custodial account for a minor.
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Set up an Account for a Child
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This is the same as a gift transfer. But you need to understand a little about UGMA and UTMA. These are state laws that govern gifts made to minors. The state you live in will determine whether UGMA or UTMA applies to you. These gifts are irrevocable and automatically pass over to the minor when they reach adult age. The account is governed by the named custodian until the minor reaches adult age.
- Uniform Gifts to Minors Act (UGMA): A state statute that provides for an irrevocable gift to be made to minors. It enables them to own securities in a beneficial fashion without the need of trust instruments or other legal documents.
- Uniform Transfers to Minors Act (UTMA): Newly enacted law that pertains to residents of various states. Under this law, custodianships for the first time, may be set up by wills or trusts. In time, this law will ultimately replace the Uniform Gifts to Minors Act. One major difference is that the donor does not have to be a living individual.
The transfer agent will require the following:
1. The Custodian's name followed by the title "Custodian"
2. The minor's name followed by UGMA or UTMA
3. The state of the minor's residence
4. The minor's social security number or taxpayer identification number
5. Complete mailing address; and,
6. The share amount to be issued.
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Can I set up an IRA in my DRP Plan?
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Several DRP Programs allow shareowners to make investments into an IRA. You need to check the specific plan to determine if your plan offers that option. The transfer agent can answer these questions and provide the enrollment forms.
