DRP Direct Stock Purchase

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Directory investment plans, or DRPs, used to be used as a way for companies to develop new sources of cash flow. Find out how directory investment plans have been used as gifts with help from a personal asset manager in this free video on investing in the stock market and money management.

Part of the Video Series: Stock Market
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Video Transcript

Hi, I'm Roger Groh. We're here today to talk about corporate directory investment plans or DRPS. Whoever came up with these names, DRPS. It really started where in the old days if you owned a common stock and that common stock paid dividends, frequently the company writes you a letter and the letter says would you like this dividend in cash or would you like to reinvest it in more common shares of our business. That reinvestment if you elect to go the stock purchase way, tends to be in small amounts. A share, 2 shares, 10, 100, but small share counts for the majority of investors. That was a wildly successful program for companies to develop new sources of cash flow. They then took it one step further. Within their stock purchase plans that the companies have, they then elected to open that up to very small investors where instead of having a 200 dollar minimum or a 10,000 dollar minimum per purchase, they would typically open up at 1 share or maybe 2, but very small dollar amounts. And that may not seem like a lot and probably even loses the company money, but from a training point of view for future shareholders, it's a wonderful gift. You can buy one share of Walt Disney stock for your daughter or son or granddaughter, you can buy one share of Berkshire Hathaway stock for your granddaughter or grandson, there are great lessons to be learned about the managers and the people in the businesses associated with that. So that's a little about DRPS, they're D R P S, that's the acronym. I'm Roger Groh.

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