drips / dpps... the cost effective way

[JHZR2]

Hi,

Ive been interested in direct investment for some time. A while back I looked into it, didnt see a clear-cut way to do it easily, and didnt have time to pursue. Lately a firend brought it up, and it IS a good way to build a nice selection of companies for the long term cheaply, and most importantly, get dividends reinvested.

Problem for me is that most companies have a drip, but there is significant cost to get the frist shares, to send to them and enable the drip.

To get a stock, and then the certificate would cost a lot: sharebuilder, for example, would cost $4+$30 for the certificate... ameritrade would cost $11+$40 for the certificate.

Is there a more cost-effective way to get the first share so that I can start the drip and the subsequent free additional investment?

on top of all of this... there is also the slight inconvenience of having to track the various holdings at a number of different companies that oversee these plans.

Is sharebuilder just the best bet, though each investent costs an additional $4?

Thanks,

JMH

 

[pitzel]

My solution to everything investing has been to get an Interactive Brokers account. $1 US equity trades, cheap margin, forex, options, bonds, futures, access to virtually every foreign exchange of significance, etc.

Only downside is you have to promise them $10/month in commissions, but that expense is nominal. Add up the costs of stamps and certificates for DRIPS, as well as those transfer agent fees and to get anything that resembles a diversified portfolio, you are already looking at significant expense.

JHZR2, my advice would be to look into index ETF's -- exchange traded funds, purchased through one of the discount brokers. A portfolio of 3 or 4 -- ie: IVV, EWC, EFA, and EMM should pretty much diversify over the entire world with minimum fees.

 

[JHZR2]

my main interest in doing this though is to add shares "for free" by getting the dividend reinvested.

My broker (ameritrade) does this on 'some' stocks, but never give a list. The only one that I know of for sure is MOT, and without >510 shares, you cant get one more at a quarterly dividend... so the money comes out as cash. I dont really want cash though, it does nothing for me... I want additional fractional shares.

I am well diversified... how does it work w.r.t. dividends in an ETF?

Thanks,

JMH

 

[Pablo]

JHZR2 - The ETF's mentioned are not actively managed and are traded as stocks. The dividends are relatively small (with the exception of EFA at 2.2+%) and the dividends are paid as cash. Buying more shares costs brokerage fees. Nothing wrong with this - I own some of these, even some of the new bond ones like TIP and LQD.

If you want to avoid high fees, want a broad market exposure and your goal of adding shares for free, then get a good low cost, no load, mutual fund. They do exist. Some (but not all) have total fund expenses under .25%. I have owned some of these - and honestly they have beaten the snot out of ETF's. Don't get me wrong - I love the liquidity of ETF's which I sometimes day trade - but I like the consistent performance of these funds.

 

[kanling]

This NAIC organization has a plan to buy the initial share at a low cost to get you started in the DRIP. My dad did this years ago when he started investing in DRIPs. I'm not sure if NAIC still does that, though. I didn't see anything about it on a quick glance through the web site.

quote:

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there is also the slight inconvenience of having to track the various holdings

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LOL, after watching my dad, I know that the inconvenience is a lot more than "slight". You might want to start off with one company for a year or two and see how it goes.

One of the worst issues is taxes when you go to sell. It is a real bear to determine what your cost basis is... because you have bought fractional shares dozens of times over the years at different prices, the company will probably go through splits, mergers, spinoffs... all that stuff. On top of that, the transfer agent that maintains your DRIP accound charges small fees that aren't well documented so it is difficult to add them to your cost.

DRIPs are definitely low cost, but you have to be careful about them costing a lot of time.