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A DRIP (Dividend Reinvestment Plan) is great for the small investor.
If you personally want to invest, but feel like you don’t have enough money, a DRIP is a great starting place for you.
You don’t need very much money to get started and you don’t have to keep pouring large amounts of money in.
How a DRIP Drips
A DRIP is a company program for it’s shareholders (anyone who holds stock or wants to hold stock in the company).
It’s a clever name, because the investment process works in a dripping nature.
You can start a DRIP by buying one stock of a company. Your dividends are automatically reinvested, which is how your money continues to drip into the account and create wealth over the long term.
More: What is a Stock?
A DRIP can also allow you to buy fractions of shares, since the dividends usually wouldn’t be enough to buy whole shares every month. Let’s say you own one stock and the stock price is $50 with a dividend of $1 per share. You would buy 1/50th of a share every time you are paid a dividend and your money is reinvested.
Let It Keep Dripping
DRIPs are meant to be a long term, “buy and hold” investment. Usually you will not be charged commissions or fees when you reinvest the dividends since you are working directly with the company. The best part is that most of the time you can even buy more shares without paying commissions or fees. That’s good news!
You can continue to purchase shares through automatic purchasing plans that can be setup with the company.
You’ve got to love automated investing!
The share you purchase and the dividends you reinvest will begin to add up quickly, even if you started with a very small amount.
A DRIP May Be for You
If you don’t have much to start with, this is one of your best options.
To start a DRIP, contact the shareholder relations division of the company you are interested in and ask them if they have a Dividend Reinvestment Plan. If they have the plan, they should get you started right away. They also have the prospectus, which is basically shareholder information for you to learn more about the company and your investment.
You can learn more about starting a DRIP from the guys at The Motley Fool or by contacting companies directly. Most large companies (such as McDonald’s, Coca-Cola and AT&T) offer this plan. Contact them directly to find out.