Direct Stock Purchases (Company DRIP Programs)

[DRILLINDK]

Does anyone utilize these company sponsored DRIP programs to purchase stock? I just learned of their existence and it seems like a pretty good deal in most cases. For instance, one company I'm interested in American Water Works (AWK) has a sponsered DRIP program:

Enrollment Initial Purchase $100
Minimum purchase $25
Maximum purchase $200,000
Account Setup Fee None
Automatic Investment Fee None
Optional Cash Purchase None
Reinvestment Fee None
Sale Fee $15.00


Fees seem really reasonable, so what's the catch?

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Here's another one I'm interested in:

HCP Inc (HCP)

Enrollment Initial Purchase $750
Minimum purchase $100.00
Maximum purchase $10,000.00
Account Setup Fee $10.00
Automatic Investment Fee None
Optional Cash Purchase None
Reinvestment Fee None
Sale Fee $15.00

The plan also offers a discount between 0-5% on the average share price for shares purchased in the plan. Currently, the discount is 1%


This seems like a great deal for long-term stock holders.

[Dividend Watcher]

There is no catch.

Years ago, I had one with Schering-Plough. Did quite well and there were no fees. Everything was done through Mellon Bank. The company paid any fees. The only hassle was you had to have at least 1 share in certificate form so it was registered in your name before you could sign up. Then when you wanted to transfer that share to the account or sell it, you had to have a signature guarantee on the paper certificate. That had to be done at a commercial bank or a registered broker around here. Otherwise, it was an easy way to ease into a position when you had some spare cash around.

Sadly, the big boys got involved and now there are lots of fees for many of them. The only thing you're showing is the fee for sale (HCP has a $10 setup fee) and you can get around that by transferring the shares to an online broker when you want to sell it. It's a little like Loyal3 in that if you only have $25 or $100 on you at the time, you can still invest instead of waiting to accumulate enough to trade through a brokerage.

Also, I don't believe you can set them up as an IRA arrangement so they are taxable accounts. If I had more spare cash around and had maxed out the IRA, I'd be looking at them myself.

[Main Street Stock Investor]

The concept of DRIPs is sound and helps build wealth over time. There are alternate ways to accomplish the same results.
http://seekingalpha.com/article/2708555-...t-strategy

M$$I

[DRILLINDK]

I just quickly glanced at Loyal3's website. This appears superior to a company sponsored DRIP program since there are no fees to buy, sell, or transfer a stock. What's the catch?


For instance, PG's company sponsored DRIP program has a $15 + 0.10/share fee to sell the stock.

[Dividend Watcher]

M$$I, your method sounds good too.

I think the point that I was looking at is company-sponsored SPP/DRIP programs are a super way to begin accumulating shares when you don't have a chunk of change to plunk down on a larger buy. Some people don't have money overflowing their pockets to be able to do that and the SPP/DRIP is a perfect way to begin a regular investing habit. I'm not sure there are many people contributing large sums to these plans versus using a discount broker. You have so much more control when you have the resources to make the commission irrelevant.

DRILL, so far I haven't seen a catch with Loyal3 either except you're limited to the companies you can invest in. According to their latest listing, PG wouldn't be available but PEP, KO, DIS, etc. are. I haven't signed up yet so maybe the devil's in the details but it looks pretty straightforward. Your PG example is one of the reasons you have to pick through Computershare's and the other custodians' listings.

The downside is you don't get to choose very specifically when the shares are purchased. Some plans invest on certain days/dates so you can approximate when and how much the purchase price would be but you may miss out on a significant dip if you can't control the purchase. Over the long term, would it make that much of a difference?

[DRILLINDK]

Do investors in DSPP’s and corresponding DRIP’s still need keep track of the cost basis for tax record-keeping purposes in order to calculate capital gains taxes due? Or do plan administrators like Computershare do this for you?

[Dividend Watcher]

DRILL, the way I read the IRS publications and excerpts from the Emergency Economic Stabilization Act of 2008 (the bailout bill), all intermediaries are not only required to track and report it to you but, if you transfer it, such as to a brokerage, are required to provide the basis information to the next intermediary within 15 days.

The law's pretty complicated but I think you won't have to worry about it.

[DRILLINDK]

Thanks Dividend Watcher! Without searching through the entire list of eligible DSP stocks, can anyone recommend the best ones with the lease fees, etc?

[Roadmap2Retire]

DRILL,
DRIPs can be a good way to build wealth, and I have used it in the past. But I decided to cancel it as it was just too much of a hassle that I couldnt bother with. I wrote a post capturing the pros and cons (sorry for the shameless plug).
http://roadmap2retire.com/2014/01/to-dri...t-to-drip/

The annoying part for me was that there was no control over the prices. If I saw a dip and wanted to add shares, I would have to mail a cheque which would take days and by that time, the stock price would recover. Also, I started DRIPping in BNS who then removed their 2% discount, which was an attractive option for me to begin with. I cancelled my drip and invest using my discount brokerage.

Loyal3 sounds like a great way to build wealth with small contributions. I know a lot of DGIs that use it, but since its not available here in Canada, I dont have any first hand experience with them. Ive also seen some ppl use Sharebuilder. Again, I dont have first hand experience, but something to look into.

Best wishes

[DividendGarden]

I use Loyal3 in addition to Computershare and a discount brokerage. When I originally signed up for Loyal3, they allowed us to purchase stocks with a debit or credit card, and I used a cashback rewards card to make these purchases, effectively giving me a further discount. Well, some people were apparently abusing this by purchasing massive quantities of stock for the cashback/rewards and then dumping the stock immediately. Loyal3 cancelled the ability to use a card and now you must use a checking account to make the purchases. Since they made this switch, I only use Loyal3 to purchase Berkshire Hathaway "baby B's" on a regular basis. All other investing is done through Computershare or an online discount brokerage now.

[DRILLINDK]

I've completed doing a little research and it appears that DSP and company sponsored DRIP's are indeed advantageous in a few circumstances. Computershare and American Stock Transfer & Trust Company offer minimal startup costs ($10-15), no ongoing transaction costs, and the ability to DRIP purchase discounted shares (0-5%) on: NNN, HCP, HCN, and WTR. AWK is also offer with minimal startup costs and no ongoing transaction costs. Although, some do require to be an existing shareholder with atleast 1 share.

The sale fee is usually $10-15 and around .12-.15 per share. I'm not sure what it is to transfer ownership to another individual or to another institution?

I'm anxiously waiting to be invited to Robinhood to utilize their commission free trading.
https://brokerage-static.s3.amazonaws.co...hedule.pdf

There's also Merril's Edge brokerage service. If you have +$25,000 in your account you get 30 free trades a month. Downside is that most people don't have $25k to start an account.
http://www.merrilledge.com/zero-dollar-t...kr9f-s.gif

[Dividend Watcher]

DRILL, you may also want to look at Wells Fargo:

https://www.shareowneronline.com/UserMan...Index.aspx

I just did a quick scan and see they had Walgreens Boots Alliance, CVS Health, General Mills, HCP, Kellogg, Kraft, Realty Income, Travelers and a bunch of others.