Direct stock purchase plans hugely popular
Direct stock purchase plans hugely popular
by Andrew Leckey
Consider
it a case of eliminating the middle man.
Dramatic
stock market gains have encouraged do-it-yourself investors to buy stock
directly from companies, bypassing a broker in the process.
About
550 companies now offer direct stock purchase plans, up from around 400
a year ago and 52 at the end of 1994. Some of the most recent growth involves
foreign firms that offer American Depositary Receipts on U.S. exchanges.
Direct
stock purchase plans allow long-term investors to enter 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. Companies are trying
to retain registered shareholders and diversify their shareholder base.
"There
is generally a more robust menu of services offered than in traditional
dividend reinvestment plans," pointed out Charles Carlson, editor of
the DRIP Investor newsletter in Hammond, Ind. "This means you
may be able to buy stocks weekly or perhaps even daily, with the ability
to sell your shares over the telephone in a transaction that's over within
24 hours, unlike traditional plans with once-a-month purchases and requirements
that sale instructions must be submitted in writing."
Many
new plans have individual retirement account options, automatic debit of
your bank account monthly to invest and also borrowing provisions, Carlson
noted.
This
is not a free lunch, however.
The
downside to these plans is that they cost more than traditional dividend
reinvestment plans. About two-thirds of the companies offering them now
require an initial enrollment fee of $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. Worse yet, others also charge a fee
on reinvestment of dividends, perhaps 5 percent of the dividends reinvested,
up to a cap of $2 or $3.
"Fees
have increased dramatically for both direct investment programs and traditional
dividend reinvestment plans, so the question is why a fee should be paid
when an on-line broker might charge, say, $5 for a trade," said Lauren
Rudd, editor and publisher of The Direct Investor newsletter in Savanna,
GA. "However, direct investing plays a role for an individual who wants
to buy a stock in a specific company over a period of time in small amounts."
Putting even $25 or $50 a month into a plan breeds discipline and can mean
a significant financial gain, he pointed out.
"We
decided we needed to beef up our standard dividend reinvestment plan to
offer the features that investors were requesting, and direct stock purchase
was a very big item on their list," said Gay Kaylor, stockholder relations
representative for Hershey Foods Corp. in Hershey, PA, which switched to
a direct stock investment plan last fall. "Our shareholders are also
our consumers, so we try to make it easy for them to buy our shares for
themselves, their children, or grandchildren."
Still,
don't overlook traditional dividend reinvestment plans, contends Vita Nelson,
editor of The Moneypaper newsletter in Mamaroneck, NY. The initial
share in such a plan is typically bought through a broker, though her Temper
Enrollment Service, for a $15 enrollment fee (or $20 if you aren't a subscriber)
and a commission of up to 50 cents on the stock, will obtain the single
share you need to join most plans. Nine-hundred companies are included in
Nelson's service.
"The
obvious advantage in a direct stock investment program is to the transfer
agent, which gets fees every time you invest," laughed Nelson.
Of
course, in all cases an investor should not just invest in a company because
it has a plan but because it's a worthy long-term investment.
Highly
recommended by Carlson, Nelson and Rudd are telecom giant BellSouth,
whose direct investment plan has a $10 enrollment fee and minimum initial
investment of $500, and oil company Exxon, with no enrollment fee
and a minimum of $250. Both can also be bought through a dividend reinvestment
plan or Nelson's service.
Other
"fee-friendly" direct stock investment programs favored by Carlson
include AFLAC, which requires a $750 minimum initial investment;
Becton, Dickinson, requiring $250; Johnson Controls, requiring
$50; Philadelphia Suburban, requiring $500; and Regional Financial,
requiring $1,000.
Rudd
suggests that fee-conscious investors consider the direct investment programs
of Wal-Mart Stores, with $250 minimum initial investment; General
Electric, with $250 required; Ford Motor Co., requiring $1,000;
Merck, requiring $350; Lucent Technologies, requiring $1,000;
and Home Depot, requiring $250.
Nelson's
choices from firms with dividend reinvestment plans include Bank One,
Harley-Davidson, Intel, Newell, Paychex, Rite Aid, Sara Lee, Schering-Plough
and Tyco International. Her portfolio for those seeking companies
with international exposure includes AFLAC, Avon Products, BankBoston,
Coca-Cola, Johnson & Johnson and Wm. Wrigley Jr.
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, Ind. 46324, is $59 annually.
The
monthly Direct Investor, 6 Keelson Lane, Savannah, GA 31411, costs
$59 a year.
The
Moneypaper, 1010 Mamaroneck Ave.,
Mamaroneck, NY 10543 (800-388-9993) costs $81 annually or $40.50 for first-time
subscribers. The Direct Investing publication is $150, or $90 for
new subscribers. The Guide to Dividend Reinvestment Plans is $17,
or $9 for subscribers to other publications.
©1999
Tribune Media Services, Inc.
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