Chapter 7: DRIPs and DPPs--the Direct Approach

The Benefits of DPPs and DRIPS
Until very recently, to take advantage of a company's Direct Purchase Program, many companies required you to be a shareholder of record. That meant that you had to buy at least one share of the company's stock through a broker -- not a particularly inexpensive way to go. As more companies do away with this requirement, shareholders are finding DPPs have a variety of long-term benefits:

• Often you not only avoid additional brokerage fees, but many companies offer their stock at a discount to the market price.
• Many companies even set up an automatic transfer of funds from your checking or savings account to purchase stock -- helpful if you use the dollar cost averaging investment method.
• You can invest small amounts -- $25 or less -- acquiring fractional shares.
• Some DPPs even let you take loans out against your investment.

Benefits may vary according to the company. Additionally, most companies charge nominal fees to defray the administrative costs associated with maintaining their programs, but overall the charges are still less than what online brokers charge to buy and sell.

The Drawbacks of DPPs and DRIPS

Before you invest in a DPP or DRIP, there are downsides to consider:

• Often, you have to send your money to the company, so you won't get today's price.
• Also, after you put in an order to sell a stock, the company sells it in a block with others' shares, frequently on a monthly or quarterly basis. That means you won't know for sure what your selling price will be.
• After you sell your stock, you probably won't get the proceeds as fast as your broker sends a check.
• Finally, if you invest in several companies, you'll face the added inconvenience of multiple statements instead of a single statement from a broker.

How to Invest
So how do you buy stock without the aid of a broker? First, of course, the company has to offer DRIPs and DPPs, and be advised that not all companies offer both programs. As you might expect, there are Internet sites that provide just that information and more.

One site, NetStockDirect.com, lets you register for free. Then you can search its files for investor-friendly companies, and even read the investment materials and apply for programs online. Some companies, like Home Depot, offer you the opportunity to sign up for their direct purchase plan directly through their Web site.