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Home > Investing > How To Invest With DSPPs and DRiPs

How To Invest With DSPPs and DRiPs

December 10th, 2011 Leave a comment Go to comments

To get started investing, consider using Direct Stock Purchase Programs/Transfer Agent purchases, which enable an investor to buy shares at a low cost with very attractive minimums that almost anyone can afford.

What Is A DSPP?

A Direct Stock Purchase Program (DSPP) is a program administered by a public company’s transfer agent that allows investors to buy shares of the company through the transfer agent rather than a brokerage firm. These programs are designed for investors who would like to make regular and continuous investments in a company. The process of acquiring shares through a Direct Stock Purchase Program is significantly different as compared to purchasing shares through a brokerage firm.

What Is A Transfer Agent?

A transfer agent is an agent, usually a bank, retained by a corporation to maintain records of investors’ account balances, handle transfers of securities for an issuing corporation, and other administrative details of owning shares directly.

The transfer agent is also responsible for bring a company’s ‘paper’ (its issued stock) to the broker market.

What Can I Do If a Company Doesn’t Offer A DSPP?

Even though a company may not offer a DSPP, you can nevertheless maintain an account with the company’s transfer agent. However, you will need to get at least one share from another source. To get at least one share, have an existing account holder fill out a request to transfer a share to you, transfer your own shares, or request to have your stock certificates deposited.

How Do Existing Shareholders Get Their Shares?

If no DSPP is offered, existing shareholders may have gotten their shares by buying them at their place of employment through a purchase plan, options exercise, or other distribution by the company. Also, the shares could have been transferred from another agent, broker or stock certificate.

Does A DSPP or Transfer Agent Share Purchase Increase the Share Count?

By investing directly with the company, you may think that the company takes the money and creates new shares versus acquiring shares on the open market. Companies cannot do this they need approval from shareholders to increase share count, this process is separate from DSPP or any other investment program. However, because you are dealing directly with the company’s transfer agent you may in fact get new shares that were previously authorized for issuance. Otherwise the agent will get the shares on the open market just like a broker.

What is a DRiP?

A Dividend Reinvestment Plan (DRiP) is an election that you make in how your dividends (if the company pays them at all) are to be handled by the entity that holds your shares, be it the transfer agent or broker. It’s not a method to setup an account to establish a company stock position, it’s a decision you need to communicate to your account holder about how your company share dividends are to be handled.

There are three choices:
1. Send all dividends to you either by check or ACH deposit.
2. Reinvest some of your dividends into new shares and the rest will be sent to you by your choice in #1
3. Reinvest all of your dividends in additional company shares.

What Are The Fees?

DSPPs and transfer agent accounts generally have lower fees than if you purchased shares by a broker. Some of these fees include account setup fees, dividend reinvestment fees, and stock purchase fees. In most cases, these fees are low or zero. Each company is different, be sure to read the accompanying documentation that comes with your plan.

Can I Buy More Shares After The Account is Setup?

DSPPs are designed for investors make regular and continuous investments in a company. Companies want you to invest with them! However, if you own shares with a transfer agent not owned through a DSPP, it is up to the discretion of the plan at the transfer agent. Transfer agents generally don’t allow additional investments in companies, be sure to read the accompanying documentation that comes with your plan.

OK, How Do I Signup?

The first place to go is the website of the company you want to invest in. They will have information about their DSPP as well as the transfer agent the company uses. If you want to peruse all the offerings by various transfer agents try these links.

American Stock Transfer & Trust Company. The nation’s largest independent stock transfer agent, partnering with approximately 3000 public companies and maintaining the records for millions of shareholders. Find companies here.

Bank of New York. The Bank of New York is the administrative agent for approximately 150 Dividend Reinvestment Plans and more than two dozen Direct Purchase Plans. Find companies here.

Computershare Limited. An online service and information resource for listed companies and the largest and only global share registry/transfer agent, managing more than 68 million shareholder accounts for over 7,500 corporations in nine countries on five continents. Find companies here.

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  1. December 11th, 2011 at 22:00 | #1

    Fantastic intro to DRIPs SFI! I always recommend DRIPS for those who want to get started with investing. The power of compounded works overtime with DRIPs!