Buying the First Share

To recap the story so far: enrolling in a Dividend Reinvestment Plan (DRIP) is an often inexpensive way to buy shares of stocks. But you need to already own one or more shares of stock (depending on the company's plan) before you can enroll in a DRIP.

Catch-22!

There are a couple of ways you can get around this obstacle. First, you could simply open an account with a deep-discount online brokerage firm with a low minimum and low commission schedule and purchase the required number of shares you need to enroll in a DRIP. After the trade is settled in your account, instruct the brokerage firm to issue you certificates for the share(s). Once you have the shares in hand, enroll in the company's DRIP. The major downside here is cost -- most brokerage firms charge a fee for issuing a stock certificate, which could be as much as $50. Add in the cost of the commission and this becomes a pricey choice. Even so, if all of your subsequent purchases are made in the DRIP at little or no commission, you could come out ahead in the long run despite the start-up costs.

Another path would be to recruit a friend or family member who has a brokerage or DRIP account and ask him or her to buy and/or sell you a share (or more) of stock on your behalf. Your friend would have to complete the necessary paperwork, so the entire process would take a month or more. Be sure to thank your friend for the favor; I suggest giving him or her a bottle of fine single-malt Scotch and finagling an invitation to sip a wee dram or too together (but that's just me).

First Share is a co-operative organization that's been around since 1991 and facilitates acquiring the first share of stock required for enrolling in a DRIP. An annual membership is $30, and each stock request costs $10 ($5 for a limited list of "Portfolio Builder" companies). When a member submits a request to First Share to purchase one share of a company, First Share refers the request to another member who is willing to sell a share in the company requested. The two members then work out the details, handling fee, and price, and the seller transfers a share (or forwards the request to the stock's transfer agent) to the purchaser. After the share is registered in the purchaser's name, the new owner may enroll in the company's DRIP and buy and sell shares directly through the company's plan.

For each company you purchase through First Share, you agree to sell a share to another member at some point down the road. The initial costs of buying the first share could be quite high when using First Share, but the point is that your costs of buying additional shares in the DRIP going forward will be minimal.

Using First Share to buy a share is time- and labor-intensive; First Share provides all the sample agreements and paperwork that you need, but the whole process of requesting a stock and completing the transaction can easily take 30 days or more. I did find a certain satisfaction in learning how to complete a securities transfer on my own, including getting a Medallion Signature Guaranty on the completed paperwork. This can be useful in gifting shares to family members, for instance. Another downside is that any company which requires ownership of more than a single share in order to participate in its DRIP (such as Disney or McDonald's) is not available through First Share.

If you're looking to get someone else started on the path to smarter investing, OneShare.com may be an option. For a transfer fee of $39 plus the price of the stock, OneShare will provide a single share certificate, in a frame for an additional cost, for any of 130 companies. You'll become the registered owner of the stock, and eligible to enroll in the company's DRIP (if you meet the eligibility requirements). They even offer a "My First Stock" kit for kids to explain what it means to own a share of stock. This option is limited in the number of companies available, but couldn't be easier in terms of getting the first share certificate in your hands.

For many years, NAIC offered a Low Cost Investment Plan where, for a fee, you could purchase a single share directly through the organization. This program was discontinued in 2006, however.

There is a still one easier and less expensive way to get started investing in DRIPs, and I'll discuss that in my next session.