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Stocks: Why would a company offer a DRIP?

You may be wondering why a huge corporation would concern itself with selling a couple shares to the public direct. The company's advantage is that DRIPs offer the company low-cost access to capital. When you purchase a stock on an exchange you are buying it from another investor, so the company sees no benefit from the sale. Where as with DRIPs, shares are bought directly from the company, and the cash from you buying the shares are then reinvested into the company. Companies also like DRIPs because they get a stable shareholder base that typically has a long-term investment style. DRIP investors are very unlikely to sell their shares when the markets start to turn sour, partly because selling DRIP shares takes a little more time and effort than just calling a broker or trading online.

Do I pay taxes on my dividends with DRIPs?

Even though the you are reinvesting the dividends received by a company, those payments are still considered as income and are treated as such as far as the Internal Revenue Service (IRS) is concerned.

While the dividends received by a corporation are taxable in the year they were paid, the gain in share price of the stock is not taxable until it is sold. This is called Capital gain, which is generally taxed at a much lower tax rate if the shares are held for long term (more than one year). Investing for the long-term pays off because you can take profits in stock and pay less taxes.

How to Get Started
Many beginner direct investors make the mistake of thinking that just buying the shares in a brokerage account will count toward setting up a DRIP. Unfortunately, this is not the case. To start a DRIP you must have the shares issued in your name. Most shares purchased though a broker are held "in street name," which means your broker is listed as the owner.

The Moneypaper (http://www.moneypaper.com) for a flat fee of $30 will get you started in a DRIP with a list of 1000 or more companies, and that's all you ever pay. Just remember that as an individual investor dealing with DRIPs, you won't receive help from any brokers because Wall Street has no interest in selling stock without commissions. If you wish to use existing shares you own in a DRIP, you must either use a transfer agent, or kindly ask your broker, who will typically charge you a fee for the service. Transfer agents include the NAIC (http://www.better-investing.org/store/lcp.html) and Moneypaper.

If you want to learn know more on DRIPs and want to know which companies offer them, Read a book called Buying Stocks Without A Broker or go to these great web sites.

DripAdvisor.com - This is a newsletter designed to empower the individual investor through DRIPS.

Drip Investor - This is a monthly publication bringing you the latest news on dividend reinvestment plans and no-load stocks and their many commission-free investment options.

Motley Fool: Fool School: Drip Investing - Here there are tutorials and articles explaining DRIPs.

Next-->>  How to place orders to buy and sell stocks


A rich man is nothing
      but a poor man with money. 
            -- W.C. Fields --



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   Always keep in mind to:
  1. Spend less than you earn! People who spend every penny they make usually end up going broke.......
  2. Take enough risk on the money you save! Playing safe by putting your money under the mattress or in a savings account will not make you wealthy..

Remember that..... Fully one-fifth of humanity, some 1.3 billion people, struggles to survive on less than $1 per day. About 40% of humanity survives on less than $2 per day. More than a billion people around the world will go to bed hungry tonight. Life expectancy in some 32 countries is less than 40 years. If you have a few extra dollars in your pocket (you don't have to be a millionaire to make a difference), please share some of your financial good fortune with others who are in great need.


Think About It...  Being in the 'now' brings a freedom, unlike living in the past or in the future, which is a kind of imprisonment. This isn't a kind of a denial where you pretend life doesn't have problems. Life is full of problems, but most of those stresses and failures are reliving old hurts or worrying about future concerns. -- Carl Honore

When you 're diagnosed with cancer, you start to bargain with God: "Let me get through this, and I'll take better care of myself. I'll get my priorities in order. I'll learn to live every day to the fullest." Isn't it sad that you have to get sick before giving yourself permission to live life to the fullest? -- Robert Schimmel Look at Life in different & Positive ways