d you know that you could buy stock directly from public companies without going through a broker? In this section, you will learn about the two ways public companies allow you to buy their stock directly from them: through direct purchase plans and dividend reinvestment plans (DRIPs). You will learn how these plans work, the major difference between the two, and how to use these investment plans effectively so you can get the most for your investment dollar.
Why Companies Offer Direct Purchase Plans and DRIPS
You may wonder why companies would want to encourage small-time investors to buy their stock by offering direct purchase plans and DRIPs. The answer is quite simple: companies that offer some form of stock purchase plans see them as a way to encourage an investor to become a loyal customer.
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Write My Essay For MeFor example, if you own shares in McDonald’s, chances are that you would rather buy McDonald’s food than Burger King’s (assuming you occasionally eat fast food). In addition, direct purchase plans give companies a cheap way to raise money directly from investors rather than going through investment bankers who would underwrite stock offerings. More than 1,600 companies now have some form of a stock purchase program.
The Difference Between Direct Purchase Plans and DRIPS
Direct Purchase Plans
Companies that allow you to economically purchase your first share, and all other shares, of their stock directly from them without going through a broker are said to have direct purchase plans. These shares are also called no-load-stock or no-load-shares, because you can purchase them without a broker’s fee or load (although you may be charged a small administrative fee).
More than 400 companies currently offer direct purchase plans, and the number is growing each year.
At least 22 companies in the Dow currently offer direct purchase plans. Some of these companies, which you might recognize, are: Walt Disney Co., Exxon Mobil Corp., Nike Inc., and McDonald’s Corp.
Dividend Reinvestment Plans (DRIPs)
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