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How to invest in Drips
New investors that don't have allot of cash can invest in drips. With a DRIP traders have the ability to accumulate shares more cheaply than buying the stock outside the DRIP. Discounts also provide a boost to the stock’s yield. Dividend reinvestment plans are known as Drip’s. Investors can purchase shares of companies like McDonalds’ Nike or General Electric fifty dollars at a time. In most cases, companies charge no commissions for purchasing stocks through their Drips, and those that do charge only a nominal fee. Sometimes investors can send optional cash payments (OCPs), in some cases for as little as ten dollars.
A number of Drips permit investors to buy stock at discounts to the current market prices. Discounts are usually three to five percent but may be as high as ten percent. Investors have the right to buy attractive blue chip stocks when they
otherwise might not be able to afford them. Discounts apply only to shares purchased with reinvested dividends, some apply the discount to purchases made with optional cash payments. The main benefit of buying stocks directly from the company either through a Direct Stock Purchase plan or a DRIP program is that the investor doesn't always have to pay a commission when making a purchase as you do with most brokers.
Bank of America (BAC), Progress Energy (PGN), and Procter & Gamble (PG) offer drip programs. Some Drips purchase stock with optional cash payments once a month, while others do so once a quarter or even once a week. The timing of purchases may differ. Some firms buy on the first business day of each month, while others purchase stock on the fifteenth of each month.
The same is true on the sell side, when it may take five to ten trading days for a sell transaction to be settled. That is why the drips are suited for longer term investing and not trading. Over time differences in price should even out and not have much of an change on your capitol.
Investing in the stock market Dividend Reinvestment Plans
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