NEW YORK -- If you're a tightwad stock investor, you've probably thought about joining a "Drip." That's shorthand for a dividend reinvestment plan. Some 900 companies offer Drips to individual shareholders (not mutual funds) who want to buy shares as cheaply as possible.
A Drip eliminates the stockbroker. You keep your company shares in the plan; when dividends are declared, part or all of them are invested in new shares automatically. You can often buy at a 3 percent to 5 percent discount from the current market price.
Most Drips also let you buy shares for cash. Some plans charge you nothing to buy and sell; others ask for nominal fees. Either way, it beats paying normal brokerage commissions.
Drips aren't for neophyte investors. You have to understand thcompany you've bought, believe in its business and intend to hold the shares long-term. These accounts aren't for traders. They're for people with patience and long-term goals.
To join most company dividend reinvestment plans, you have to be a shareholder. One share usually is enough, although a few plans require more. And the share has to be registered in your name; it can't be held in the name of your brokerage house.
Here's how to get that magic share:
1. Look at the companies whose stock you own already. If some shares are in your name, and that company has a Drip plan, you can sign up right away. If the shares are in your broker's name, however, you'll have to have them transferred to you. The broker may charge a fee for this and drag his or her feet. But be persistent. The whole reason for making this change is to eliminate brokerage commissions. Sometimes the Drip plan will hold all these shares for you. If not, put them in your safe-deposit box.
2. Buy a share on the open market. Many brokers won't take so small an order. Others will, at a charge of $35 to $40 at a full-service brokerage house and $25 to $35 at a discount broker.
3. Buy from an organization specifically set up to provide single shares to investors intending to open Drips. They include:
* The National Association of Investors Corp. (313-543-0612). For a $35 membership fee, you get a subscription to NAIC's Better Investing magazine, some other investment materials and a directory of Drips. NAIC runs a Low Cost Investment plan that will sell you single shares in some 120 companies for a $5 service fee.
* A new company called First Share (800-683-0743), which charges $24 for a two-year membership. First Share doesn't sell you stock directly. It puts you in touch with another member willing to sell you the share. You pay market price, plus $7.50 to the seller, plus $4 to First Share. You also have to agree to sell a single share of each company you buy to another new member (thus recouping your $7.50 cost). First Share's directory of 100 leading Drip plans costs $25.85.
* The Moneypaper (800-388-9993), which is the most expensive option. You subscribe to an investment newsletter for $36, then pay $15 to $20 for each single share that the Moneypaper helps you buy. Its Drip directory costs $25 ($9 for members) and contains less information than the others.
4. Call the handful of companies that let you join their Drip plans directly, without first owning a single share. You'll find a list in the Directory of Dividend Reinvestment Plans ($15.95; call 219-931-6480).
A final option is the Drip-ish service run by the discount brokerage firm, Charles Schwab (800-435-4000). It lets you reinvest dividends from almost any stock you buy, but there's a fee: 3.5 percent (up to $3.50) on reinvestments up to $250 and 1.5 percent on larger amounts. You can't buy any shares at a discount, and will pay Schwab's commission on shares bought for cash. So there aren't a lot of savings here.