I believe that DRIPs are an easy and painless way to build up a good portfolio of quality stocks. DRIPs should be for long term buy and hold only. DRIPs, which stand for Dividend Reinvestment Plans, are a great way to take charge of your own stock decisions and circumvent the broker. Through these plans, you can make a miminum initial payment, have your dividends reinvested each quarter, and add to the stock portfolio as often as you want through OCP's (optional cash payments). This allows you to own a partial share of a stock, as you send in a definite amount on a regular basis (ex $100 - not necessarily the amount for a share). You don't need a large amount of money to start and by investing on a regular basis (with money you won't miss) you become a long-term investor.
When I started my first DRIPs in 1994, there were only about 150 stocks available through DRIPs, and they were mostly utilities. Now there are DRIPs available for many of the good companies, such as Home Depot, Wal-Mart Stores, ExxonMobil, GE, Duke Energy, Procter & Gamble, Merck, BellSouth, SBC Communications, McDonald's, Compaq Computer, and Walgreen Drugs. All of the mentioned stocks let you purchase your first share(s) of stock directly from them (There are many more than I have listed). Charles Carlson has written extensively about DRIPs, and he has several books on the subject which can be found at your public library. Two of the best are "Buying Stocks Without a Broker" and "No-Load Stocks". He also publishes a monthly newsletter called the "DRIP Investor" and the "Directory of Dividend Reinvestment Plans". In this directory, he gives a lot of information about each stock in the plan and lists the stocks with all the fees. The Motley Fool Investment Guide by David and Tom Gardner also has a chapter on DRIPs.
If you want DRIP information on the web, there is so much available. Individual Investor has its own DRIP information, and a new DRIP board which just started in September (GLSmyth is the manager). There is also dripinvestor.com/. The site, www.moneypaper.com has a lot of DRIP information, and a plan to purchase one or more shares if you need it to start your DRIP account. (For example, Intel Corp (INTC) requires that you have 1 share to enter their DRIP, PepsiCo (PEP) requires 5 shares to start)
Also, available on the net is BUYandHOLD.com, which is considered a synthetic DRIP, and it allows you to purchase both DRIPs and stocks that do not pay dividends. So if you want to purchase such great stocks as JDS Uniphase, Juniper Networks, Cisco, CMGI, Sun Miscrosystems, or Yahoo, you can send in as little as $50 at a time for only a $2.99 service charge. They apply this to your account, and you can add to the stocks on a regular basis. They do all the book work for you and you can view your account at any time on the net.
Some DRIPs charge a small fee each time you invest an optional cash payment. (Ex: HD charges $2.50 each time., GE charges $3 each time.) On the other hand, ExxonMobil and Intel do not charge any fee. It is important that you get this information before you set up a DRIP account as these fees can add up. Some DRIPs even charge a small fee when the dividends are reinvested.
Before you start a DRIP, you need to get the perspectus from the company, and be familiar with all the fees that are involved, as well as the required minimum down payment and monthly OCP's. You fill out the form, and send it in, along with the required minimum payment, and you are in the DRIP. They will send the paperwork to you with the number of stocks (plus portion of stock) you now own.
You need to keep records. If you decide to sell somewhere down the line, there is information you need for your taxes. Hold onto the last record you receive each year, as it will be a summary of the year's transactions. It will show the entire year's dividends and OCP's made, plus any fees you have paid. I keep all my records in a binder, under the stock names. After you catch onto how to do it, it is very easy.
I invite you to think about starting some DRIP accounts. The daily fluctuations in the market are not as important because you have a long term investment horizon. For more about DRIPs, visit our new DRIP board or The Woman Investor board and you will get a lot of help.
Keep on DRIPping!