Dividend Reinvestment Plans (DRIPs)
Companies that allow you to buy additional shares of their stock directly if you already own one or more shares of the company’s stock are said to have dividend reinvestment plans (DRIPs).
You will find that some investors use the terms “direct purchase plans” and “DRIPs” interchangeably, but there really is a difference between the two. This difference can be significant to Teenvestors, who have little money to invest in the first place. Historically, the most significant difference between direct purchase plans and DRIPs is that a company that offers only a DRIP will generally not allow you to purchase your first share from it directly (unless you spend a ridiculous amount of money for the initial purchase).
Need Help Writing an Essay?
Tell us about your assignment and we will find the best writer for your project.
Write My Essay For MeUnless you already own a share of that company and it is registered in your name, you would have to purchase your first share of the company’s stock through a broker. Of course, once you have that initial share, you’re set. You can then participate in the DRIP and take advantage of the reduced fees offered through it. Companies such as Boeing and Travelers offer only DRIPs. The “dividend reinvestment” part of these plans refers to the fact that when you participate in them, your dividends are automatically reinvested in additional shares of the company’s stock.
The Stock Registration Requirement
Both direct purchase plans and DRIPs require that all shares you buy as a participant in the plans be registered in your name. Usually, when a stockbroker buys shares for you, the stocks are registered in the name of the firm for which the broker works (or in the street name, as it is called). For example, if you buy one share of Nike’s stock through a broker, the share belongs to you but Nike does not have any idea that you actually own it.
All Nike knows is that your broker has one share that belongs to someone. To participate in DRIPs, however, the company whose stock you own must be aware that you personally own one of their shares. To accomplish this, your broker must buy your initial share, register the security in your name, and have the stock certificate mailed to you. All brokers (new online brokers as well as traditional brokers) can do this effortlessly. The certificate is the proof that companies with stock investment plans need to allow you to participate.
Some brokerage firms charge ridiculously high fees for transferring the security in your name. Others charge more affordable fees for this transfer. After the transfer, the company whose stock you own will recognize you as a shareholder, and it will send annual reports and other investment material directly to you. More important, you will then qualify for the company’s DRIP if it has one.
DO MY ASSIGNMENT!Order essays, research proposal, capstone project, speech/presentation, book report/review, annotated bibliography, discussion, article critique, coursework, projects, case study, term papers, research papers, reaction paper, movie review,and more.
TOO MANY ASSIGNMENTS? Let our professional writers help you!
