Coming to terms: DRIPs and DSPs
DRIPs let you buy shares of a company’s stock directly from it, bypassing brokers (and broker commissions). Direct stock purchase plans (DSPs), a newer kind of DRIP, operate similarly, but you needn’t own any shares before enrolling.
Those with only a few dollars to invest at a time are not out of luck with the stock market. Dividend reinvestment plans (DRIPs) can help you invest sums such as $20 or $50.
DRIPs let you buy shares of a company’s stock directly from it, bypassing brokers (and broker commissions). Hundreds of major corporations offer DRIPs.
With traditional DRIPs, you must own at least one share of a company’s stock before you enroll in your own name. So if you’re not already a shareholder, you’ll have to buy at least one share through a broker, paying the commission.
Be sure to specify that you want the share(s) registered in your name, not the brokerage’s name, as is typically done.
Then you can open a DRIP account with the company and buy additional shares directly. If you already own shares, you may have to pay your brokerage a fee to switch the registration from its name to yours.
Direct stock purchase plans (DSPs), a newer kind of DRIP, operate similarly, but you needn’t own any shares before enrolling. You can buy your very first shares through them.
DRIPs and DSPs let you “dollar-cost average,” building a position in a stock by regularly investing in it.
They’ll even purchase partial shares for you. For example, if Honeywell is trading around $71 per share and you send in a $25 contribution, it will buy about a third of a share. When the price is low, you get more shares, and vice versa. (Be sure to keep detailed records of all your purchases, for Uncle Sam.)
Some plans even let you buy stock at a small discount to the prevailing price. Explore the websites of companies you’re interested in to see whether they offer these plans.
Alternatively, just save up a few hundred dollars (or more) at a time and invest through a regular brokerage account.
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