DRP Features & Benefits

Key Points
You can invest paying little or no commissions; buy stock with dividends; make optional cash purchases; sell stock through the DRP plan; dollar cost average your investments; and enroll in many plans even if you are not a shareholder.

• Invest Commission-Free.  Most of the earlier DRP's offer commission-free stock purchases. However, many DRP's charge fees for specified services. Some of the newer plans offer direct purchase of the initial share. These plans seem to be top-heavy with fees. Each company that offers a DRP plan publishes a "Prospectus" that spells out its terms and conditions. Fees are normally small, but better check them out before you get involved in a specific company.

• Buy Shares with Dividends.  You can choose to have dividends automatically reinvested into additional shares. The shares do not even have to be full shares. If you own one share of stock that has a $30 market value and the dividend is $2.50, the DRP will issue you a partial share -- 0.083 shares to be exact. Reinvesting dividends keeps your investment growing.

• Buy Shares with OCP's.  Most plans allow investors to send OCP's (Optional Cash Payment) directly to the company to purchase additional commission-free shares. Plans vary, but most invest these funds at market value monthly. You can invest as little as $10 to $25, up to $1,000's periodically. No commission.

• OCP Investment Dates.  Most plans invest OCP's at least monthly. However some DRP's purchase stock for your account only four (4) or eight (8) times annually. Choose plans that invest at least one (1) time monthly.

• Sell Through the DRP Plan.  Most DRP's, not all, will sell your stock. Some require that you use a broker to sell your stocks. Most charge a brokerage fee. The fee is often only 10-20 cents per share. Some place limits on the number of shares they will sell for you. Some DRP's charge a service fee to sell your stock, this fee is normally only a few dollars. Become informed before you select a stock, you will avoid a lot of unpleasant surprises. Read the prospectus!

• Dollar-Cost-Averaging.  Dollar-cost-averaging is the result of regular, periodic stock purchases. This strategy normally reduces the average cost of your stock. DRP's are an excellent tool for dollar cost averaging. You can be eliminate the concerns of buying and selling stock at just the right time.

• Discounted Stock Purchases.  Some DRP's offer discounts on stock purchases, however most do not. Of those that do, the discounts normally only apply to shares purchased with dividends.

• Shareholder Status.  You must be a shareholder to enroll in most DRP's. Normally a shareholder of one share can join. However, some require ownership of five or 10 shares to join and a few companies require as many as 50 shares.

• Buy Initial Stock Direct.  Some companies allow you to bypass the broker completely. For example you can open a DRP direct with Mobil Corporation with an initial investment of $250. But remember, you can also buy one (1) share of Mobil through a broker, have them issue a certificate in your name and qualify for the program.

1. Select Stock Wisely.  It is simple to start buying stock through DRP plans, but it requires homework to select wisely. About 900 companies offer DRP's, so you have a large field to select from. Remember, just because a company offers a DRP plan, it isn't necessarily a good choice for your dollars.

2. Build a Diversified Portfolio.  Become knowledgeable about each stock that interests you. There are more quality stocks than any one person has the financial means to buy. It is said that even the billionaire Warren Buffett has only a handful of stocks in his portfolio. If you include 5 to 10 well-chosen stocks in your portfolio, you will be on the right track.

3. Understand the DRP Program Before You Invest.  The "Prospectus" details the specific terms and conditions of the plan. Read the prospectus before you get involved in the stock! Some programs charge unreasonable fees and that will affect your bottom line. It is available free from the company or the transfer agent that administers the programs.