DRIPs and Direct Purchase Plans
I hope by now you see the wisdom of reinvesting dividends if you’re attempting to build wealth for the long term.
Typically, the easiest way to do it is through your broker. Most brokers do not charge commissions or fees for reinvesting dividends. If yours does, find a new one. There’s really no reason to pay a fee or commission on such a small transaction.
When you allow your broker to reinvest the dividends for you, all of your portfolio information is in one convenient place.
However, not everyone likes to keep his or her stock in their brokerage account. Some like to deal directly with the company they’re invested in.
Those people can usually reinvest their dividends through the company itself in what is known as a Dividend Reinvestment Plan (DRIP). You can also buy more stock directly from the company if it offers a Direct Stock Purchase Plan (DSPP).
With a Direct Stock Purchase Plan, you send your check right to the company, and it credits your account with more shares. If you own 100 shares of a $20 stock and send the company another $200, your account will show that you are the proud owner of 110 shares (assuming there are no fees, which there often are—we’ll get to that in a minute).
But here’s why I don’t like DRIPs and DSPPs: They often have fees and commissions that are higher than those of a broker.
For example, let’s take a look at Altria (NYSE: MO), a company that qualifies under the 10-11-12 System. Its yield is 5.7% and ...