Cutting Out the Middleman Entirely

As more and more companies reach out to individual investors, more companies have begun to offer plans that make it easier than ever for individuals to buy shares of stock -- by allowing investors to buy the initial shares directly from the company!

These plans are commonly known as Direct Stock Purchase (DSP) plans or Direct Purchase Plans (DPP). They work quite simply: send a check to the company for the required minimum of shares, along with an enrollment form, and you'll become a shareholder. Once you are a shareholder, you can buy additional shares (pursuant to any minimums, schedule, and fees set by the plan) in your account.

Approximately 400 companies now offer DPPs. These tend to be larger, established dividend-paying companies, and you can have future dividends reinvested in your account, as well. There are a handful of companies that offer DPPs but do not pay dividends, such as XM Satellite Radio Holdings or Yahoo; these plans are designed to be a way for investors to accumulate shares over time.

The required initial investment for DPPs ranges from $25 (TrustCo Bank of NY) to $3,000 (Granite Construction), but the most common amount is $250 or less.

Nearly 30 companies require $100 or less to get started, including CVS Caremark, Eaton, Bob Evans Farms, Kellogg, and Oskosh Truck.

About 235 companies today require $250 or less to make the initial purchases and enroll in their plans,
including Caterpillar, Costco Wholesale, Dell, Lowe's Companies, Medtronic, Paychex, PepsiCo, Southwest Airlines, Staples, United Parcel, and Wal-Mart Stores.

Fees may still apply for these transactions. CVS Caremark charges a $7.50 initial fee plus $0.10/share for the initial purchase. On subsequent transactions, they charge $0.10/share and a fee of $1.00 for electronic transfer and $2.50 for paper checks. The company pays the fees on reinvested dividends, so there's no additional charge to the shareholder for that service (though you may see an item on the year-end plan you receive from a DPP for taxable income in the amount of a company-paid fee). You must always research a plan thoroughly before you invest.

There is no comprehensive list online of Direct Purchase Plan minimums and fees, but you can start your research by looking at this page on my DRIPcentral.com web site.

You can also review the listings on the major DPP administrators, such as Mellon Investor Services or ComputerShare.

There is still one other method of starting to invest in stocks that remains to be discussed in my next session.

I'm enjoying the workshop.  As a rather new investor, all my stocks are in DRIPs.  I also can find DRIPs by looking at the company's annual report.  The last few pages normally lists their transfer agent and a point of contact.  One thing I find very useful on DRIPs is that I don't need to buy a full share as partial shares are routinely purchased.

Bob