Investing 101: Direct Purchase Plans and Dividend Reinvestment Plans

For investors that would rather add to their stock portfolio themselves instead of going through a broker or agency, there are many ways to do so. The top two ways are by adding through direct purchase plans and dividend reinvestment plans. Each remove the middle man which means saving money, but do have their downfall when it comes to timing of the purchase. And thanks to the internet and popularity of apps, participating in both options are simple.

Direct purchase plans, also known as direct stock purchase plans (DSPP), are offered by a company to allow investors to purchase stock directly from the company. Not all companies offer direct purchase options and they usually vary in criteria for participation from company to company. Some require a minimum dollar amount to be purchased or require that a certain number of shares are already held by the investor (usually just one share) to lower the minimum dollar amount purchase. For example, the Campbell Soup Company (CPB) requires a minimum $500 one-time purchase or $50 ongoing automatic invest for new investors or a minimum of $25 for either a one-time purchase or ongoing automatic invest for individuals owning at least one share in the company. An enrollment is usually required along with initial setup fees, cash purchase fees and ongoing automatic investment fees imposed but they vary from company to company and total much lower than broker commission fees. A good place to start researching which companies offer DSPPs is at the Computershare site. The site posts a listing of companies that offer DSPPs along with details of participation requirements for each company. And as always, if you have a specific company that you are interested in purchasing stock from, research their website to see if they offer DSPP.

Dividend reinvestment plans, also known as DRIPs, are offered by a company to allow investors to use their dividend payments to purchase additional stock (whether whole or partial). The reinvestment is automated requiring no actions by the investor. Not all companies offer dividend reinvestment plans and they usually vary in criteria for participation from company to company. Some companies that offer a DRIP pays the dividend reinvestment plan fees on behalf of the investor where others charge a percentage or flat rate. For example, Intel Corporation charges 5% of the amount reinvested up to a maximum of $5.00. Whereas Sony Corporation pays the dividend reinvestment fee on behalf of the investor. An enrollment is usually required, along with an initial setup fee and ongoing automatic investment fees imposed but they vary from company to company and total much lower than broker commission fees. Again, the Computershare site also posts a listing of companies that offer DRIPs along with details of participation requirements for each company. An investor can also enroll into a dividend reinvestment plan on the site. And as always, if you have a specific company that you are interested in reinvesting your dividend payments in, research the company’s website to see if they offer a DRIP.

There’s also a third option involving the rise of no and low commission apps that allow for minimal stock purchases such as Robinhood and Divy. Robinhood is available for both iPhones and Androids but Divy is currently only available for iPhones. Robinhood has no minimum purchase amounts and Divy has a minimum purchase amount of $10.00. Both apps are customer friendly and provide real time data. The only downfall (along with the direct purchase plan and dividend reinvestment plan) is that purchasing (and selling of stock) is not real time. Hopefully this will be resolved in the future which will open the opportunity for day trading. Also, there is no dividend reinvestment options provided through the apps – even if the company does offer a dividend reinvestment plan. The apps will alert the user the date of an upcoming dividend payment and will deposit money into the user’s account in the app. The dividend payment can then be used to purchase more stock or deposited into the user’s bank account. Although the Robinhood app has no purchase minimum, it doesn’t allow for partial purchase of stock but the Divy app does. However, the Divy app charges commission fees as low as $.10 where Robinhood charges no commission fees.

Although there are still great benefits to investing with an aid of a broker or agency, there are a lot of helpful alternatives for those that are comfortable investing on their own. And as technology progresses, more alternative investing will be presented and accessible to all.