Evaluating and Comparing DRIP Stocks

One of the first rules of DRIP investing is that a stock that is of low quality, or is over-valued, or is both of low quality and over-valued is never a good investment candidate. It doesn't matter if the company makes its stock easily available through a low-cost, low-minimum investment program, if it doesn't appear to be a good investment, then you shouldn't buy shares. Period. (Try Take Stock or Investor's Toolkit to analyze a stock.)

Still, it doesn't do any good to research and analyze a stock only to learn that it's not available in a DRIP, or it has a minimum that's above your budget.

Unfortunately, it's not always easy to find out if a stock offers a DRIP or DPP. As I mentioned back in Session 4, there isn't a comprehensive online database available in which you can search for DRIP stocks. But here are some tips for finding candidates for further research:

• Review the list of DPP stocks on DRIPcentral.com. This list doesn't include the 1000+ DRIP-only stocks, however.
• Visit the web sites of major DRIP/DPP administrators, such as Mellon Investor Services or ComputerShare. These often have search functions that can help you narrow your scope.
• Look up a company's profile on Morningstar.com; the Company Profile section notes whether a company offers a Direct Investment and Dividend Reinvestment options.
• Check the Investor Relations area of a company's web site.

Once you have a handful of ideas for further study, you can begin your research into the company's quality and value.

At the same time, it can be useful to research a company's DRIP or DPP fees and minimums. I've come up with a quick Excel worksheet that can help you compare the true costs of investing in a company's DRIP or DPP. It notes the most important fees and services offered by a plan and lets you compare several plans side-by-side. You can easily adapt this worksheet to add in other criteria, such as whether there are fees for transferring shares as gifts.

As you can see from the sample companies, there can be a wide array of fees and charges related to buying, selling, or setting up a DRIP/DPP account.

Once you've done your own due diligence, you can then begin the fun part -- start investing in stocks!