Buying stock direct increasingly attractive
by Andrew Leckey
Wall Street Report
Going
directly to a company to buy its stock, bypassing a broker in the process,
has become increasingly attractive to investors and firms alike in 1998.About
425 companies now offer direct stock purchase plans, up from just 52 at
the end of 1994. Many foreign firms have joined the trend as well. Investors
like the easy initial step of entering a dividend reinvestment plan with
the intent to buy more shares without having to buy the initial share through
a broker, as a traditional plan requires. Meanwhile, companies see it as
an excellent way to retain registered shareholders and diversify their shareholder
base."We
have more than 120,000 shareholders enrolled in our direct enrollment plan,
compared to the 30,000 we had when we initiated it in 1989 (switching over
from a traditional dividend reinvestment plan)," said Douglas Czarnecki,
shareholder services director for Texaco Inc., in White Plains, NY, whose
plan is the oldest among major companies."We've
also boosted the allowable contributions to the plan to $120,000 annually
for those enrolled."McDonald's
Corp. was the first consumer product company to offer a direct purchase
plan three years ago and now two-thirds of its registered shareholders participate."When
you enroll in our plan, the minimum initial investment in a lump sum is
$1,000, though if you join our monthly automated deduction plan from your
savings or checking account, it is $100," explained Mary Healy, assistant
vice president for investor relations at McDonald's. "We want individual
investors to own our stock and we consider it an opportunity to build trust
and loyalty."The
downside to these plans is that about two-thirds of the companies offering
them now require an initial enrollment fee that varies from $5 to $15, as
well as a fee per purchase that can run from $1 to $10 a transaction. A
small number also exact an annual administrative fee of $3 to $5. Worst
of all, others also charge a fee on reinvestment of dividends, perhaps 5
percent of the dividends reinvested, up to a cap of $2 or $3."You
have to investigate how you plan to invest in a particular program because
the same fee structure can affect different investors different ways,"
said Charles Carlson, editor of the DRIP Investor newsletter in Hammond,
IN. "A $50 investor paying a flat $5 fee will certainly find the fee
more punitive than someone investing $500 or $1,000 a crack."It
might, therefore, make more sense to either select a more "fee-friendly"
direct enrollment plan, or instead invest fewer times during the year in
a larger amount each time, Carlson advised.There's
an even greater number of plans that permit entering a traditional dividend
reinvestment plan by purchasing one share of stock, noted Vita Nelson, editor
of The Moneypaper newsletter in Mamaroneck, NY. That initial share
is typically bought through a broker, though her Temper Enrollment service
for a $15 enrollment fee and 50 cent commission on the stock will obtain
the single share you need to join a plan. Nine-hundred companies are included
in Nelson's service."I
think it makes more sense to buy a single share without having to put down
several hundred dollars and without having to pay fees to buy more shares,"
asserted Nelson. "There's been a lot of hype about the other kind of
plan because the transfer agents got aggressively involved and they get
something every time from it."Among
low-fee-direct-purchase plans with minimums of $100 or less, Carlson's favorites
are Johnson Controls, Wisconsin Energy and WPS Resources. Another selection,
Becton, Dickinson, has a $250 minimum initial investment, but will waive
the minimum if an investor agrees to automatic monthly debit of at least
$50. If you're investing $500, Carlson suggests Fannie Mae and Walgreen
Co., both of which will waive their initial minimums if you agree to an
automatic monthly debit. Two other low-fee plans he likes are those of Eastman
Kodak and Exxon.Choosing
from traditional dividend reinvestment plans requiring no fees to make cash
payments, Nelson recommends a portfolio of Exxon, Franklin Resources, Intel,
Philip Morris, Coca-Cola, Johnson & Johnson, Diebold, Harley-Davidson,
Sara Lee and Tyco International. For greater diversity, she suggests Phelps
Dodge, 3M and Newell as well.A
free listing of all companies with direct purchase plans, their phone numbers
and investment minimums is available through the DRIP Investor at
800-233-5922. A subscription to the DRIP Investor, 7412 Calumet Ave.,
Hammond, IN 46324, is $59 annually.The
Moneypaper, 1010 Mamaroneck Ave.,
Mamaroneck, NY 10543, costs $81 annually or $40.50 for first-time subscribers.
The phone number is 800-388-9993. The Direct Investing publication, featuring
five different portfolios, is $150, or $90 for new subscribers. The Guide
to Dividend Reinvestment Plans is $17, or $9 for subscribers
to the other publications.Editor's
Note: Andrew Leckey, a financial anchor
on the CNBC Cable Television Network. ©1998 Tribune Media Services,
Inc.