Buy Stocks without Paying Broker Fees using DRIPs.

There’s an easy way to invest in companies, especially the more established ones without having to pay commissions to your broker, or using a brokerage account. It’s called Direct Purchase and Dividend Reinvestment Plans (DRIP)

The premise is simple: you can reach out to a company to buy stocks directly instead of doing it through a broker. You can sign up to have dividends mailed to you, or have all your dividends reinvested in more of the company’s stocks. You’re allowed to make one time stock purchases starting from as low as $250 in some companies or you can enroll in a continuous plan that allows you invest as little as $50 every month, withdrawn automatically from your bank account.

It’s a painless, easy way to build up a significant position in a company. The continuous enrollment plan also serves as a sort of dollar cost averaging mechanism, where you spread the cost or risk of buying at the wrong price by spreading your buying over a long period instead of all at once.

I have Direct Purchase plans right now with Chevron, ExxonMobil, Coca-Cola and Johnson & Johnson. I’ll probably set up more as time goes on. The potential drawback of having DRIPs is that your stock positions are scattered all over different companies, whereas with a broker or Vanguard you can log into one place and manage all your positions. The best solution I’ve found for that is

They allow you to search for DRIP plans, set up a plan of your choice either for one time purchase or ongoing, and allow you create a portal to monitor and manage all of them in one place. It solves the non-broker problem rather well.

One final caveat: don’t put money in a DRIP that you plan on selling anytime soon. You will pay at least four different fees, including a courier fee because the first payout will be mailed as a check, and then taxes and what have you. I think the reason is not only the fact that companies want their direct investors to be stable, long term owners or partners in the business instead of here today, gone tomorrow types on the open market, they also don’t need a lot of frenetic activity in this department that would force them to have active operations settling your trades and what not. So It’s best to set up a DRIP as part of your long term investing plan. Any shorter term speculative trades you want to make will have to stay with a traditional or online broker.

Overall though, considering that a lot of investors returns are swallowed up by brokerage commissions and what not, DRIPs are a good way to save some extra money and improve your return.

Is that not why we’re here?

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