Long Post Warning-if anyone sees a correction that needs to be made or other helpful additions or deletions--please feel free to post them. My writing tends to the technical side and I'm a newbie with stock investing.Ideas for the FAQ section:Q. What are dividend reinvestment plans, or DRiPs?A. www.boards.fool.com/Message.asp?id=1030009002000 (TMFJeff)Editorial note: One disadvantage is that you have no control over the timing and price of shares that are bought or sold through the DRiP plan. However, to take advantage of market dips, you can buy additional shares through a broker and transfer them to the DRiP.Teminology:DRiP-Dividend ReInvestment PlanDPP-Direct Purchase PlanOCP-Optional Cash Purchase/PaymentAT-Automated TransferQ. What are some things one should think about when getting ready to invest in DRiPs?A. www.boards.fool.com/Message.asp?id=1030009002088000 (GLSmyth)Q. What is a DPP(Direct Purchase Plan)?A. With a DPP you can purchase stock directly from the company without having to first buy a share through a broker or other source. Most companies with a DPP also offer a DRiP.Q. Where can I get information on DPPs and DRiPs?A. Some internet sites which provide information are: The Motley Fool www.fool.com/DRIPPort/DRIPPortInfoLinks.htm The Clearinghouse www.enrolldirect.com -lists companies with DPPs. Netstock Direct www.netstockdirect.com -lists companies with DPPs and DRIPs. This site has a search engine, plan criteria and links to companies. The Securities Transfer Association www.stai.org published a list of DPPs and links to Reuters MoneyNet data on the companies. Moneypaper www.moneypaper.com -information on DRiPs and includes a brokerage to help buy the first share. The DRIP Investor www.DripInvestor.com -information and advice from Charles Carlson. Stock1 www.Stock1.com -lists S&P 500 and Mid Cap companies with DRIPs.Q. How do I start a DRiP?A. www.boards.fool.com/Message.asp?id=103000900209000 (GLSmyth)Editorial note: If you purchase your stock through a broker, you don't need to wait until you actually have the certificate in hand. www.boards.fool.com/Message.asp?id=1040005004504003Another possible way to acquire the first share is to have it transferred from a friend or family member or if the company has a DPP to buy the share from the company.Q How do I combine DRIPS with the Foolish Four?A. www.boards.fool.com/Message.asp?id=1030009002083001 (Peckham)Q. What kind of stocks should I invest in DRiPs?A. Stocks that you plan to hold for the long term. This is a good way to get children interested in stocks so they can select stocks and watch "their" money grow. Q. How do I cash in my DRiP?A. There are a couple of options to withdraw from a DRiP. The first is to have the plan transfer any "whole" shares in certificate form to you and then liquidate any "fractional" shares. Then you can send the certificate to a brokerage company to sell. The second option is to have the DRIP sell the shares and forward the proceeds to you. If the DRIP sells the shares, there will usually be a $10-15 fee plus a commission cost/share and you have no control over the price the shares are sold.
Help...The links to the message boards didn't work. TMF Jeff's was Post #8992 (2/5/99). GLSmyth's were Posts #9008 & 9009 (2/6/99). Peckham was Post #8995 (2/5/99). My apologies to Trevar--she had a response in Post #9053 (2/7/99) about Netstock Direct and a couple of books for recommended reading. I also referenced a link to her Post #12701 (4/28/99).
I'm still learning..I'm trying this again. If the www. is replaced in the links with http:// , I think the links might work. What is a Drip?http://boards.fool.com/Message.asp?id=1030009002082000What should one think about?http://boards.fool.com/Message.asp?id=1030009002088000How do I start a DRiP?http://boards.fool.com/Message.asp?id=1030009002089000http://boards.fool.com/Message.asp?id=1040005004504003How do I find DRiP or DPP/DSP Companies?http://boards.fool.com.Message.asp?id=1030009002082001How do I combine DRiPs with the Foolish Four?http://boards.fool.com/Message.asp?id=1030009002083001
Sorry folksOne final correction:How do I find DRiP or DPP/DSP Companies?http://boards.fool.com/Message.asp?id=1030009002082001Thanks for your patience while I get this straight.VaLurch
Hi, VaLurch!No need to apologize. Thank you for your tremendous efforts.Fool on!Vince
VaLurch.Let me add my thanks to that of TMFElwood. You obviouly put alot of time and thought into your post and many will benefit from your work. Effort like that should be apploaded. Keep up the great work.smyers3
Great job, VaLurch! I have just a couple comments. I've generally seen the following acronyms: DSP-Direct Stock Purchase planACH-Automated Clearing House -- bank terminology for automatic debit from a checking or savings accountThese are the conventions used in the NetstockDirect database. If folks agree that these are the appropriate acronyms, DPP would need to be changed to DSP in a number of places throughout the FAQ.You may want to add links to NAIC -- they also have a mechanism for their members to get first shares. I believe the URL is http://www.naic.com but it might be http://www.naic.org (can't check it at the moment).Also, you may want to include links to DRiP Central: http://www.dripcentral.com and FirstShare: http://www.firstshare.comTrevar
I've seen both DSP and DPP in my reading and had orginally written DSP/DPP.NAIC www.better-investing.org/store/lcp.htmlOther links for possible inclusion:WINVEST Investment Club-a DRiP oriented investment club http://members.inquest.net/"winvestFirst Shares - a membership organization to help purchase/transfer the first share www.firstshare.comFor Canadian investors - Directions - information on Canadian companies including DSP/DPP and DRiPs www.ndir.comwww.natcorp.com/direct.html also has a list of DPP companies and was the source for many of these links.
VaLurch,Thank you for the incredibly Foolish work that you've done. It helps greatly in making the final (but ever tweaking) FAQ. For now, in fact, your work already serves as a FAQ. I hope to put together your work and the work of others in one post and make it the full FAQ this week. Thank you again for making this possible and for continuing to help! Very Foolish. Fool on!Jeff
Fools, welcome!The following is the Motley Fool's Direct Investing and Drip Portfolio Frequently Asked Questions list. (We'll tackle direct investing first, then the Drip Portfolio.) If you have content to add, questions to ask, or improvements to suggest, please post them on this board. We will incorporate them and credit you. This will be a work in progress.Without further ado:=============================Q. What are dividend reinvestment plans (DRPs, or DRiPs) and direct stock plans (DSPs)? Direct Investment Plans DefinedThere are two types of direct investment plans: Dividend Reinvestment Plans (DRPs)and...Direct Stock Plans (DSPs) The benefits offered by every direct investment plan that we're interested in include the ability to:- Invest small amounts of money on a regular basis- buy more shares when prices are lower, and less when they're higher (as a result, you don't fret over the stock market's volatility)- Reinvest dividends directly into more stock- Avoid commissions and other costs- Vary your investment amounts monthly, or don't invest at all when you wish- Diversify your stock portfolio even with very little money - Sell shares readily...and much more.Dividend reinvestment plans are more prevalent than direct stock plans (which are also called direct initial purchase plans, or DIPs). Nearly 1,100 companies offer dividend reinvestment plans, while over 450 companies (and growing) provide direct stock plans. Partially due to the Internet, direct stock plans will likely outnumber dividend reinvestment plans in a handful of years.Both plans allow an investor to purchase shares of stock directly from a company in amounts that can range from $10 per month to $50,000 per month without cost, and almost all plans allow dividend payments to be reinvested in more stock. The only cost with a majority of these plans is a one-time startup fee that averages between $12 to $15, and a similar fee to sell stock. Usually, all of these plans are administered through a transfer agent. A transfer agent is a financial firm, such as a bank, that handles the plan's transactions and record keeping. You only need to be aware of transfer agents because they are the entities that you usually transact with when using direct investment plans, even though it'll often seem as if you're dealing directly with the companies in which you're investing.Usually it is the large, long-established, dividend-paying company that offers either type of direct investment plan. So, what're the differences between the two plans? They're slight and are mainly encountered at the outset.To enroll in a company's dividend reinvestment plan, or DRP, you usually must be a registered owner of at least one share of the company's stock. In contrast, to enroll in a direct stock purchase plan, or DSP, you can begin to purchase shares directly from the company immediately. It's that simple: you typically must own at least one share of a company's stock to enroll in its DRP, but you needn't be a shareholder to begin most DSPs. Once you begin, both plans are very similar in function and in purpose.Each type of plan has slight advantages and disadvantages. The largest difference involves the money needed to start. Dividend reinvestment plans usually require you to own one share to enroll, meaning you typically must spend $60 to $100 to begin. By contrast, direct stock plans allow you to immediately enroll. However, you usually must start these plans with a minimum investment that can range from $250 to $500. So, DRPs typically require a smaller investment to start.While it's important to understand the differences, it isn't necessary to contemplate them any more than we already have. A company will either offer a dividend reinvestment plan or a direct stock plan, but you'll decide where to invest based on a company's merits, not on the plan that it offers. The plans are equally beneficial, no matter what startup quirks they may have. What's more important is that you start to invest sooner rather than later. For more:http://www.fool.com/DRIPPort/WhatAreDRIPs.htmQ. What is important to consider before beginning to invest in these plans?A. First, your standing credit card debt should be zero. From there, very succinctly helpful thoughts are here: http://boards.fool.com/Message.asp?id=1030009002088000Q. When should I begin and how can small amounts of money compound to become meaningful?A. http://www.fool.com/DRIPPort/1999/DRIPPort990504.htmQ. How do I begin a direct investment plan?A. http://www.fool.com/DRIPPort/HowToInvestDRIPs.htmAnd... http://boards.fool.com/Message.asp?id=1030009002089000[Editorial note: If you purchase your stock through a broker, you don't need to wait until you actually have the certificate in hand. Another possible way to acquire the first share is to have it transferred from a friend or family member or if the company has a DSP to buy the share from the company. http://www.boards.fool.com/Message.asp?id=1040005004504003]Q. Where can I get more information on DSPs and DRPs?A. Internet sites which provide information are:The Motley Fool http://www.fool.com/DRIPPort/DRIPPortInfoLinks.htmThe Clearinghouse http://www.enrolldirect.com -- lists companies with DSPs.Netstock Direct http://www.netstockdirect.com -- lists companies with DSPs and DRPs and allows direct online purchase of over 300 DSPs. This site has a search engine, plan criteria and links to companies, too.The Securities Transfer Association http://www.stai.org publishes a list of DSPs and links to Reuters MoneyNet data on the companies.Moneypaper http://www.moneypaper.com -- information on DRPs and includes a brokerage to help buy the first share.The DRIP Investor http://www.DripInvestor.com --information and advice from Charles Carlson.Stock1 http://www.Stock1.com -- lists S&P 500 and Mid Cap companies with DRIPs.FirstShare http://www.firstshare.comQ How do I combine DRPS with the Foolish Four?A. http://boards.fool.com/Message.asp?id=1030009002083001Q. What kind of companies should I invest in?A. Leading companies that you understand and that you plan to hold for the long term. Here is what the Fool's Drip Portfolio looks for, roughly, in its investments: http://www.fool.com/DRIPPort/DRIPCriteria.htmQ. What prices are good to buy at?A. See our "Price vs. Value" column for larger thoughts on direct investing and valuation: http://www.fool.com/DRIPPort/1999/DRIPPort990311.htm. Because direct investors dollar-cost-average, they will buy at various prices over time and in the end the prices paid will average out to the lower, more attractive side, if they invest regularly.Q. What about direct investment plans and IRAs?A. http://www.fool.com/DRIPPort/1998/Dripport980309.htmQ. How do I open direct investment plans as gifts for friends or for children?A. http://www.fool.com/DRIPPort/1999/DRIPPort990422.htmQ. Can you tell me about the Education IRA and these investment plans for children?A. http://www.fool.com/DRIPPort/1998/dripport981210.htmQ. How do I sell shares from a plan?A. There are a couple of options. The first is to have the plan transfer any "whole" shares in certificate form to you and then liquidate any "fractional" shares. Then you can send the stock certificate to a brokerage company to sell. The second option is to have the plan sell the shares and forward the proceeds to you. If the plan sells the shares, there will usually be a $10-15 fee plus a commission cost/share and you have little control over the price the shares are sold (they will be sold at market prices usually within a few days or week of your request). You can sell partial shares or sometimes (though not always suggested) borrow against your account value if you need money. Selling for any short term need alone should be avoided if possible. You want to let your money compound for decades, and keep adding money on temporary market or stock weakness.Q. When should I sell an investment that seems to have gone bad? And how do I know it has gone bad?A. http://www.fool.com/DRIPPort/1999/DRIPPort990608.htmQ. What about Taxes?A. The Tax Man Cometh column: http://www.fool.com/DRIPPort/1999/DRIPPort990305.htmQ. Where do direct investment plans come from?A. http://www.fool.com/DRIPPort/HistoryOfDRIPs.htm The Drip PortfolioQ. What is the Motley Fool's Drip Portfolio?A. It is a real money portfolio founded in the summer of 1997 that invests via direct investment plans. It offers a regular column for educational reasons and it announces all buys before making them and only after long public study.For information including the number of stocks the port will own, what it began with, readers "following along", and what it aims to do, see this page: http://www.fool.com/DRIPPort/DRIPsIntroduction.htmAfter that, for other complete Drip Port information, see this page: http://www.fool.com/DRIPPort/DRIPPortInfoLinks.htmQ. What does Drip Port own?A. As of mid-1999, it owns Intel (INTC), Johnson & Johnson (JNJ), Mellon Bank (MEL), and Campbell Soup (CPB). Campbell Soup is frozen due to fees. Q. How do Drip Port and other Fools account for their regular investments?A. We use a share price or "value per share" accounting method much like a mutual fund does in order to keep our returns accurate while adding cash regularly. For details: http://www.fool.com/DRIPPort/AccountingDRIPs.htmQ. Why are TMF Graney's Drip Port columns so angry?A. TMF Graney (Brian) is taking Johnson & Johnson's anti-psychotic drug following the unfortunate experience of being attacked by a herd of wild monkeys in a 1992 zoo breakout incident. Brian broke out of his cage and stumbled upon a family of monkeys who were viewing him.============================These FAQs will continue to grow and be improved. Again, if you have suggestions or additions, please share them on the board. Many thanks already to VALurch, GLSmyth, Trevar, Peckham, TMF Elwood, TMF Graney, TMF Runkle and many other Fools who will be added here.Good investing, and Fool on!
TMFJeff,Thank you for the most excellent FAQ. It is extremely well done and I think it will be very useful on the DRiP boards. I have just a couple minor comments.In the list of bulleted items near the beginning, it says:- buy more shares when prices are lower, and less when they're higher (as a result, you don't fret over the stock market's volatility) I think it's important to avoid the impression that the buyer has any control over the price at which the shares are bought or sold because we all know that in DRiP and DSP plans we really don't have that control as we would if we just bought outright through a broker. Maybe we could add to this as follows: - realize the benefits of "dollar cost averaging by making regular Optional Cash Payments (OCPs) or monthly automatic bank debits (ACHs). (As a result, you don't fret over the stock market's volatility.) For even more benefit, adjust the amount of your OCPs to buy more or less when the stock's price is higher or lower.You might want to add a link to the Moneypaper's INVEST% feature: http://www.moneypaper.com/invest/index.html. With George's permission, you might want to add a link to George's DRiP spreadsheet for tracking DRiP investments. In the paragraph that begins While it's important to understand the differences... there the following phrase: you'll decide where to invest based on a company's merits, not on the plan that it offers. I would suggest that this phrase be in boldface because it is so important to folks just getting started with DRiP investing. If an individual has only a little money to invest, it can be very tempting to focus on companies that have low minimum OCPs. It's an unemotional decision to stick to the basic principle of investing in a company, not a plan. I think it takes a while to learn and assimilate the ability to be unemotional about investment choices.Trevar
Hi Trevar,Great points. I can make the one statement more clear: when you do use dollar-cost-averaging regularly, you do buy more stock at lower prices and less at higher prices automatically (if you invest the same amount each time). That was the point not clearly made, but meant to be made. Your other comments are very helpful, too. Thank you to you and many others for all the help and Foolishness on the boards. We'll tweak the FAQ regardings your comments, and others, ASAP!Fool on!Jeff
I understand that DRIP and Direct plans allow investors to purchase shares with dividends or with new money.What I want to know is this, does the company hold shares in reserve that it sells to DRIP and Direct plan investors? Or, does it buy the shares in the open market when shares are needed. I believe the company issues new shares that had been held by the company but someone else told me they buy them in the secondary market. I see little value to the company of buying shares and then turning around and selling them to DRIP and Direct plan investors. Which one of us is foolishly correct? Perhaps neither of us have reached the level of being a fool.
<< What I want to know is this, does the company hold shares in reserve that it sells to DRIP and Direct plan investors? Or, does it buy the shares in the open market when shares are needed. >>All of the DRiP purchases that I make are made on the open market. I'm not aware of any plans where the shares are held in reserves expressly for DRiP plans (except enrollment services, which might hold shares in their corporate accounts, and transfer them to your name when you enroll in a DRiP).Bryan in Birmingham
What I want to know is this, does the company hold shares in reserve that it sells to DRIP and Direct plan investors? Or, does it buy the shares in the open market when shares are needed. It depends. They might issue new shares, use treasury stock, or buy on the open market. Or some combination of the above... Check the prospectus for more details; the ones I've looked at detail how the shares are priced depending on how the shares are obtained (bought on the open market or not). One of the benefits of a Drip plan, from the company's point of view, is that it represents a cheap way to raise extra capital (no need to pay investment bankers a cut to bring out a secondary offering!). The short version is that unless the prospectus says otherwise, the company can either issue shares or buy on the market, depending on what they feel like doing.Never go on an adventure without a hat!Indyhttp://users.interconnect.net/indy/
Regardless of where the company acquires the shares (either "on hand" or from the market), I would expect that the share price for the DRIP purchase would be at what ever the market price is on that date, or the cost of acquiringf the shares. To do other wise would, in my opinion, short change other owners.I realize that there are some companies (most commonly utilities???) that in their prospectus offer a price break for some re-invested dividends, but that is made clear up front.
I bought CPB at about $53.00 two years ago, my experience with this stock has not been happy. Do you thant I should sell and cut my losses or hang in for the long term and hope?
I bought CPB at about $53.00 two years ago, my experience with this stock has not been happy. Do you thant I should sell and cut my losses or hang in for the long term and hope?Why did you buy the company? Are they following the reasons for which you purchased them in the first place? Do you see their long-term prospects as favorable?When you answer these questions, you will know whether or not to hold onto it. I've been purchasing Coke all the way down because I believe they they will offer an excellent return, once the largest economy in the world (China), where they maintain total dominance, makes a full recovery.IMHO, just because the price goes lower, that doesn't mean that it is time to sell. But if the company is working contrary to your decision to purchase, then it is time, regardless of the price.george
A suggestion - Please include the answer to the question:How do you track the real rate of return on drip investments?(You state that the drip portfolio uses the same method as Mutual Funds, but hasn't that been changed? Could this be updated with a link to "How to..."Charlotte
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