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Author: exilion Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 27818  
Subject: Re: New Guy Understanding DRiPs Date: 4/22/2001 3:29 PM
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Norm,
You said....
Once I have that certificate in my name, I can continue to add to that DRiP stock by investing more into it through whatever service I opt to use (again, directly through the company or through a discount broker). The ultimate idea is that I'm investing and the dividends are automatically reinvested, increasing the ultimate shares of my stock in that company, and therefore, the value of my portfolio.


Generally speaking, once the certificate is in your name, you use the company sponsored DRiP, it isn't in your brokerage account anymore. If it were in your brokerage account, then use the DRiP feature with your broker, reinvesting dividends only. If you want to buy additional shares, then it will cost an additional commission. The DRiP allows you to pool your money with other participants and purchase more whole and fractional shares for your account at the DRiP in many cases with no additional commission.

You said.... "Do I understand correctly so far?"

Pretty much. DRiP stands for Dividend Reinvestment Plan (or Program). Generally speaking, you need to acquire that qualifying first share through a low cost broker, or other stock purchase service. No need to pay any more money for a share of stock you already know you want to buy. Paying more for a full service broker is only for that broker's analysis and advice, and sometimes you don't get what you pay for and/or are paying for something you don't necessarily need (analysis and advice).
DSP is Direct Stock Purchase Plan. Generally speaking, these programs have a set $ minimum you have to send to the transfer agent and your money purchases along with other participants any whole shares plus any fraction down to three or four decimal places.


You said.... "Question... Do I HAVE to make a monthly investment into the DRiP?"

No! That is why they call investments OCPs (OPTIONAL Cash Payments-- or something like that). However, it is important that you fund your account so it will have a shot at funding your plans down life's road. One share, reinvesting dividends and splits could get you several shares down the line, but if you contribute at least erratically, you will have substantially more than what you would have had, if you never added to the initial share.


Keep in mind that when I write "Generally speaking" that is what I am doing. Not all plans are created equal, and while many are similar, some are quite unique. The dreaded prospectus is where you must look to find out the ins and outs of each plan. It may be kind of difficult at first, but I have faith that if you can figure out the basics of DRiPs, you can probably figure out the prospectus too.


The folks at Moneypaper.com have this kind of information spelled out starting at this link...

http://www.directinvesting.com/Drip-Information/DripInfo1.cfm

Start here, and then click through all the other sub-sections, because once one question is answered, another is likely to be asked...
What Are Direct Investment Plans?
Why Are They Valuable Options?
How to Build a Well-Diversified Portfolio
How to Qualify for DRIPs
Shares needed to qualify for DRIP
Shares Needed to Reinvest Dividends
The Cost of Opening a DRIP Account
Better Than Average (Dollar Cost Average)
Foreign Investors
IRAs and DRIPs
Fees, Dividends, Taxes...
DRPs, DRIPs, or DSPPs?
Selling Shares Through the DRIP


By the way, I only subscribe to one of the newsletters they publish, other than that, I have no affiliation with the Moneypaper. They do have a knack for explaining the benefits and drawbacks of the DRiP process.

By the way, we are all here (Well, MOST of us are here) if you have something in a prospectus that you don't understand or other questions that may come up. Hopefully, among all of us, there is someone that can clarify any DRiP or DSP issues. If you do a search with keywords about your query, many times you may find it has been answered already.


I wish you well in your learning journey. Keep us posted.

exilion
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