A STEADY STREAM OF DRIPs
Buying stock directly from a company used to be a privilege reserved for existing shareholders. But in recent years, the barriers have been falling. Since 1994, companies offering so-called no-load stock purchase programs to first-time investors have more than doubled, to over 100. And the pace is picking up.
This summer, a new wave of stock market staples such as Sears, Conrail, and Home Depot will allow anyone to buy shares without paying a broker's commission. What's more, within the next 18 months, nearly half of the 900 companies with dividend reinvestment plans (DRIPs) restricted to stockholders already on the books are expected to switch to open enrollment, according to James Volpe, who heads the direct investment program at First Chicago.
LOAN PLANS. New entrants to the no-load universe are unveiling some interesting new features. Ameritech, the Chicago-based telecommunications company that is opening its doors to all comers on June 3, is offering two loan options. Investors with at least $2,000 worth of shares held by the transfer agent can borrow up to 50% of the value of their account at rates close to prime. Payments are automatically deducted each month from the shareholder's bank account. Those who own more than $4,000 in stock may borrow up to 75% of holdings. Wal-Mart Stores, which began a direct purchase plan in May, will unveil a similar loan feature in June.
Other services are making DRIPs sound more like brokerage accounts. Many companies now let investors redeem their shares by phone. And like the automatic investment plans at mutual funds, no-load stock investors can buy additional shares by having money withdrawn from their bank accounts periodically, says Charles Carlson, editor of DRIP Investor, a newsletter. As an added incentive for customers to sign up for automatic investment, companies often waive the initial purchase minimum, which can be as high as $1,000.
Despite the no-load label, most plans carry nominal administrative costs. McDonald's--often cited by critics for excessive fees--charges $5 for enrollment, $3 a year for reinvesting dividends, $5 each time you buy more shares, and $10 per sale of stock. But any fees in a direct purchase plan are almost always lower than what you'll pay at a brokerage firm. That's one big load off an investor's back.
EDITED BY AMY DUNKIN By Kerry Capell
Updated June 14, 1997 by bwwebmaster
Copyright 1996, Bloomberg L.P.