What are Dividend Reinvestment Plans (DRIPs)?
Direct Investment for Individual Investors – How to Invest Directly
Mar 24, 2009
This article will explain what dividend reinvestment plans are and how an average individual investor can get started on the path to direct investment. See below for more information about the Wal-Mart, Disney, and Procter & Gamble direct investment programs.
What are Dividend Reinvestment Plans (DRIPs)?
Dividend reinvestment plans are set up by individual companies to allow direct investment in company stock. They are offered to encourage long-term investment in a company. The basic idea is simple – invest in shares of dividend paying stock, reinvest all dividends in the form of that same company’s stock (as opposed to getting paid in cash), then reap the benefits of accumulating additional shares over the years and (hopefully) experience appreciation in stock value to boot.
How to Invest through DRIPS: Direct Investment in Company Stock
Hundreds of U.S. companies offer DRIPs. To find out whether a particular company offers a direct investment program, individuals can visit the company’s corporate website. The investor relations section should contain details (or instructions on where to go to find details) regarding any such plan, if it exists.
In general, an individual can follow these steps to invest in a DRIP of any given company that offers a direct investment plan:
- Go to the company website. Look for the investor section.
- Download the prospectus (or plan brochure), which should contain details about investing with the company and directions for enrolling in the direct investment plan.
- Fill out enrollment forms as indicated in the prospectus and mail them in with any applicable initial investment. Note: Some companies require ownership of at least one share of stock before enrollment in a direct investment plan while others allow non-shareholders to participate by simply sending in an initial investment. The plan prospectus should discuss this in detail.
- Choose to reinvest the dividends. This may not be the only option available to investors; direct deposit of dividends may be the default election.
Note that a company may manage the dividend reinvestment program in-house through a shareholder relations department; some companies opt for a third party program administrator such as Computershare.
Investing through DRIPs: Other Considerations for Individual Investors
Initial required investment may be more for those without previous stock holdings in the company. Luckily, dividend reinvestment plans often have low initial investments, such as $250 or $500, which open the door for small investors.
Companies That Offer Dividend Reinvestment Plans: Disney, Wal-Mart, P&G
Dividend reinvestment plans go by many names. One company might call it a DRIP while another calls it a Shareholder Investment Program or perhaps a Direct Investment Plan. The Walt Disney Company, Procter & Gamble, and Wal-Mart are just three companies that offer such plans.
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