DRIP Investment Options

DRIP investments, or Dividend Reinvestment Plans, are intuitive investments that allow you to buy stock from a company directly using dividends. You do not need a large amount of money to begin the process and the rewards can be great. You can also use cash in many instances to purchase stock and increase your stake in said company.

Company Run DRIP Investments

Company run DRIP investments are run by the companies themselves and in some cases no prior share ownership is necessary. Most company-run programs are administered at the corporate headquarters and information can be found online. If you participate in a company-run DRIP, it will most likely be part of the overall employee investment service department.

Transfer Agent DRIP

DRIP investments can be complicated, so many companies have outsourced this work to agencies whose sole purpose is managing these types of DRIP accounts. These companies administer the DRIP investments in exchange for a small fee per transaction or overall portfolio. These agents are specifically trained to do this work and due to their large clientele base, can cost much less than if a company administers this service themselves.

Brokerage DRIP

Some brokerage firms have added the DRIP investment to their service menu. They are able to keep costs low and even allow DRIP investment with firms that do not have DRIP programs available. Their expertise in overall investment management allows them to execute services that would otherwise be unavailable. The major limitation is that brokerage-run DRIP investments do not allow cash purchases or stock, which is one major advantage of a DRIP investment as a whole.

Benefits

DRIP investments provide for the responsible reinvestment of dividends received from stock purchases. Depending on the overall yield of the stock return, reinvestment can provide you with more return than simply investing any dividends in a money market account or savings account. Also, there is little initial outlay, you can buy as little as one stock and reinvest the dividends to buy more over time.

Potential

By reinvesting your dividends, you can potentially make money on your investment above and beyond the actual yields of the stocks themselves. What makes a DRIP investment great is the fact that the dividends are never seen by you and you have no availability of the funds to waste on frivolous purchases or bad investments. Once you sell your stock, you will notice the substantial increase in overall investment due to purchase made with money you never saw.