Chris HopkinsInvestors today are fortunate to have access to a variety of low-cost conduits to the stock market. In fact, the array of discount brokers, mutual funds and internet trading platforms provide so much choice that some less experienced investors might easily feel overwhelmed.
One easy, productive and educational way for beginners to get their feet wet is to enroll in a direct investment program. Offered by hundreds of great US companies, direct investment plans or DIPs allow shareholders to purchase stock directly from the issuing company, and more importantly to automatically reinvest quarterly dividends in more company stock. For this reason such plans are often called Direct Reinvestment plans or DRIPs. Thanks to the power of regular investment and compounding, the results over time can be dramatic.
Details vary widely, but hundreds of companies offer direct reinvestment plans. The starting point is typically the acquisition of at least one share of the company’s stock directly from the firm, through a broker or the company’s transfer agent, or from one of several businesses that specialize in helping new investors get started with DRIP investing.
Once you own one share or more, the fun begins. As a shareholder, you will receive regular updates including the annual report of the company’s financial health and operating results. If you live near enough or wish to travel, you are also entitled to attend the annual shareholders’ meeting.
Most importantly, by setting up a regularly scheduled payment plan either monthly or quarterly, you can watch your holdings grow systematically over time as you purchase additional stock and as your growing dividend payments buy more and more shares each quarter.