In a previous post, I discussed the benefit of investing in stocks directly using dividend reinvestment plans (also known as direct purchase plans, direct reinvestment plans, or direct stock purchase plans - there are some slight pragmatic differences here, but nothing that should prevent you from getting started and enrolling). In this post I would like to go into more detail on a specific method of direct investing. This involves buying stocks directly using MoneyPaper.

MoneyPaper is the name of an online and print magazine that publishes directories of direct investment plans listed on American stock exchanges. It also includes Canadian and other foreign stocks (eg., Toyota, Nestle, BP) in their ADR (American Depository Receipt) form on the NYSE and NASDAQ. Online, MoneyPaper is located at http://www.directinvesting.com.

The MoneyPaper guide is more than just a directory. It also discusses the larger picture of “how to build wealth DRIP by DRIP” by investing without a broker. It explains what DRIPs are, how to create a diversified DRIP portfolio, and how to enrol in DRIPs using the Temper Enrolment Service.

Temper of the Times Investor Services is a broker that specializes in doing DRIP enrolments and is affiliated with MoneyPaper for helping MoneyPaper subscribers get started with their first dividend reinvestment program. It’s only $50 (a one-time charge) for enrolling in a plan through MoneyPaper, and you get half-off ($25) if you’re already a MoneyPaper subscriber. For this reason it’s probably the easiest way to get started investing in securities.

Stocks You Can Buy Commission-Free (No Broker)

The guide lists almost 1,000 different companies and the types of direct stock purchase and reinvestment plans they offer. Some of the more well-known US companies that offer DRIPs include Costco (COST: NSDQ), Domino’s Pizza (DPZ: NYSE), Equifax (EFX: NYSE), Fannie Mae (FNM: NYSE), Home Depot (HD: NYSE), JP Morgan Chase (JPM: NYSE), Mattel (MAT: NYSE), Proctor & Gamble (PG: NYSE) and Texas Instruments (TXN: NYSE). There is quite a selection. With this amount of companies that you can buy directly into, who needs to invest with a broker?

What’s even more amazing, from my own perspective, is that you can even DRIP quite a few foreign companies listed in New York under their ADRs. This is probably the best way to invest foreign, as well. You don’t have to worry about trying to figure out how to buy Chinese companies on the Shanghai or Hong Kong exchanges. Here’s a list of some that already allow DRIPs:

China Eastern Airlines Corp. (CEA: NYSE) -
China Mobile (CHL: NYSE) -
China Southern Airlines (ZNH: NYSE) -
China Telecom Corp. (CHA: NYSE) -
China Unicom (CHU: NYSE) -
Guangshen Railway Co. Ltd. (GSH: NYSE) -

Not all of these companies are 100% fee-free. China Eastern Airlines’ plan, for example, charges $5 (+10 cents/share) for each optional cash purchase. Home Depot’s plan charges 5% on reinvestments of the amount of dividends reinvested (but only up to a maximum of $2.50). Even still, these fees are cheaper than many brokers. And as I explained in my last post, many plans have absolutely no fees at all. These are the ones you want to look out for first. Lehman Brothers Holdings Inc. (LEH: NYSE), for example, pays all fees for reinvestment, certificates and optional cash purchases (although there is a $10 fee to sell if you ever decide to withdraw from the DRIP). These figures are all based on the 18th edition of MoneyPaper’s Guide (pictured above). You should always check the websites of the companies in question (as well as their Transfer Agents) for the most up-to-date figures and information. Some of them do change.

Many years ago I read a little book by Cemil Otar here in Canada called something like Your Guide to Commission-Free Investing. It was a self-published book and looked it. I think I picked it up in the Chapters Books that used to be near Bay and Bloor in Toronto. Lucky me that I found it then. It might have been another decade before I heard about “dripping” as it has now become even more popular in Canada. (The history in the U.S. might be a different story; there are hundreds of “drips” down there compared with only 40? or so here).

What’s a DRIP?

A DRIP is a dividend reinvestment plan. It allows you to buy shares in a company at no commission. And many/most of them also allow you to have your dividends reinvested with the company in the company shares at no cost either. And this is done automatically. For free - with most companies that offer DRIPS.

How Do I Get One?

In the U.S., many companies will allow you to enrol directly - from them - even right from their website. Go to their website and look up “Investor Relations.” Other companies require that you first own a single share and that that share be held by you in “certificate form.” This is also known as having the share “registered” in your name, as opposed to the share being held “in street name” with your broker.

In order to get your first share, you can:

1) buy one through a brokerage account. Then ask them to certificate it (this costs between $40-$55
2) enrol through a service like MoneyPaper
3) get a friend or colleague to transfer a share over for you (more complicated and they need to know what they’re doing, but this could save you alot of money)

Why Would I Want One?

Aside from being the only free way to invest in stocks? Well, that’s the most important reason. DRIPS are great for long-term, buy-and-hold investors like myself. If you like the idea of slowly building up funds in an account, this is for you. It’s like a savings account where the interest rate is pretty good and keeps getting better once a year. There are several ways to make more money by having DRIP accounts:

1) dividend amounts increase
2) stock splits, so you get more shares, and soon, more dividends
3) share price goes up, so company earnings go up and then they increase the dividend again
4) company gets bought out by another: usually this causes the share price to go up and you have a gain
5) some DRIPS reinvest at discounts: this means you save more money

So basically, DRIPS aren’t any different from investing in stocks any other way, except that the best of these plans are FREE and some even offer discounts (free money).

What Companies Have DRIPs?

There are hundreds. Here are just some of the bigger ones that I can remember off the top of my head. If you want to check on a company, go to their website, click on “Investor Relations” and you’ll find out. Not all companies have DRIPs.

US:
General Electric
Johnson and Johnson
Wal-Mart
Emerson Electric
Pfizer
Proctor and Gamble
Colgate-Palmolive
Coca-Cola
Pepsi Co.
Walt Disney
Home Depot
Lowe’s
Bank of America
(and hundreds more…)

Canada:
Bank of Montreal
Trans-Canada Corporation
Enbridge
Telus
Imperial Oil
Suncor
Fortis

ADRs:
Toyota
BP
etc.

Your Story

OK, so you already know about DRIPS and your grandma bought you a share in Disney when you were 10… I’d be interested to hear all your DRIPPING stories. What are your favourite companies? How often do you contribute? Do you still think DRIPPING is a great investment strategy? How old were you when you started dripping?

For me, it’s a balance between dripping and using conventional brokerage strategies. You can’t beat free investing, but there are great advantages to going with a reputable online discount broker. Less paperwork. Faster return times. Less stuff you have to remember. But what do you think - has dripping been worth it? And if you hadn’t heard of dripping before, are you interested now that you’ve read this?