Buying Forecasts Stocks Direct

9/11/2017


Tired of dealing with middlemen? Some stocks allow you to avoid that hassle.

Roughly 700 U.S. companies and more than 200 foreign firms offer dividend reinvestment plans (DRIPs). These programs allow U.S. investors to buy stock directly, no brokerage accounts required.

Two flavors

DRIPs come in two types:

1) Traditional DRIPs require an investor to already be a registered shareholder — usually it takes just one share — to join the plan. The one-share requirement represents a hurdle for some investors to join plans, especially those without a broker to buy that first share.

2) Fortunately, a growing number of companies now allow any investor to buy the first share and every share directly. This type of DRIP, known as a direct-purchase plan, usually has an initial minimum of $250 or less. And once in the plan, you can take advantage of dividend reinvestment and the ability to make optional cash investments.


Two ways to buy

DRIP transactions are conducted primarily via transfer agents hired to administer their plans. Investors can buy shares in two ways:

• Instead of receiving dividend checks, investors reinvest the dividends directly to buy additional shares. If the dividend amount is not large enough to purchase whole shares, investors receive fractional shares, which in turn receive a fractional part of future dividends.

Many DRIPs allow partial dividend reinvestment. Under this feature, investors can reinvest some of their dividends while receiving cash for the remainder.

• Nearly all DRIPs allow participants to make optional cash investments to buy additional shares. The minimum optional cash payment for most DRIPs is $100 or less, with some minimums as low as $10.

Just like purchases made with reinvested dividends, investors may buy full and fractional shares with their optional investments. In other words, if you send in $100 net of fees for a $40 stock, you'll end up with two-and-a-half new shares.

Also, investors may set up automatic monthly debits from a bank account for optional investments, thus making it easy to establish a regular dollar-cost averaging program in their DRIP investments. 


The Forecasts' sister publication, DRIP Investor, has been tracking DRIPs for 25 years. Over that time, the plans have changed quite a bit. One big change is on the fee side.

Early DRIPs were cost-friendly, with most plans absorbing the costs to purchase shares. However, it is now more likely that an investor will incur fees to buy stock in the plans. These fees include a one-time enrollment fee (usually $10 to $15) and purchase fees of $1 to $15 per investment. The plans also charge a fee to sell shares, usually in the $10 to $20 range. With the advent of fees has come a greater menu of services for participants. For example, many plans permit online purchases and sales.

Also, some DRIPs have IRA options built directly into their plans. Direct-purchase plans with an IRA option include Exxon Mobil ($79; XOM) and McDonald's ($158; MCD). Some DRIPs, primarily real estate investment trusts (REITs) and a few utilities, even allow a participant to reinvest dividends and/or make optional investments at discounts to the market price, usually 3% to 5%.

Three of the A-rated REITs in our Alternative Income Watch List (www.DowTheory.com/Go/Alt)— Liberty Property Trust ($43; LPT), Omega Healthcare Investors ($32; OHI), and Welltower ($74; HCN) — offer discount options.

Doing your homework

Because features of DRIPs differ from plan to plan, investors should obtain a prospectus explaining plan details. You can find out if a company offers a DRIP and who administers the plan at the company's website, usually in the shareholder services or investor area. Prominent transfer agents include American Stock Transfer & Trust (www.astfinancial.com), Computer-share (www.computershare.com), and Wells Fargo Shareowner Services (www.shareowneronline.com). You can obtain information about how to join the plans at the transfer agents' websites or via telephone.

Admittedly, some of the appeal of DRIP investing has diminished over the years with the advent of low-cost, online brokers. It is not unusual today to buy stocks online via a discount broker at transaction fees of $5 to $10 per trade. However, the biggest benefit of DRIPs hasn't changed: They serve as a door opener for small investors to buy stocks in a way that fits any pocketbook. For that reason, DRIPs represent an excellent avenue for introducing a child or grandchild to investing.

Just because a stock offers a DRIP doesn't make it a good investment. The good news is that a lot of high-quality companies offer DRIPs or direct-purchase plans, including a number of Forecasts recommendations. The table below lists all Forecasts Buys and Long-Term Buys that offer DRIPs. We highlight those with direct-purchase plans and provide contact numbers you can use to find a prospectus and enrollment information. These phone numbers go to the transfer agent, not to the company.

RECOMMENDED STOCKS WITH DRIPS
Company (Price; Ticker)
Div.
($)
Yield
(%)
52-Week
Price Range
($)
Quadrix
Overall
Score
Optional
Cash
Purchases,
Minimum
Investment
($)
Phone
Number
Amgen ($178; AMGN)
4.60
2.6
184
 -
134
93
25
(877)
879-8033
CBS ($62; CBS)
0.72
1.2
70
-
49
76
50
(866)
595-1717
Comcast ($41; CMCSa)
0.63
1.5
42
-
30
94
50
(888)
883-8903
Comerica ($67; CMA)
1.20
1.8
76
-
45
96
25
(877)
536-3551
FedEx ($212; FDX)
2.00
0.9
220
-
158
95
50
(800)
446-2617
J.P. Morgan Chase
($90; JPM)
2.24
2.5
95
-
65
86
50
(800)
758-4651
Lowe's ($77; LOW)
1.64
2.1
86
-
65
74
25
(877)
282-1174
Snap-on ($146; SNA)
2.84
1.9
182
-
141
84
100
(800)
446-2617
Southwest Airlines
($52; LUV)
0.50
1.0
64
-
36
78
50
(866)
877-6206
Zions Bancorp
($43; ZION)
0.48
1.1
48
-
30
96
10
(888)
416-5176
• Initial purchases may be made directly from the company.    Note: Quadrix scores are percentile ranks, with 100 the best.

Intriguing DRIP stocks

One group heavily populated with DRIPs is banks, and three Forecasts recommendations — Comerica ($67; CMA), J.P Morgan Chase ($90; JPM), and Zions Bancorp ($43; ZION) — offer plans. Comerica and Zions have traditional DRIPs that require share ownership to join the plans. Once in the plans, Comerica's minimum optional investment is $25, while Zions' minimum is just $10.

J.P Morgan offers a direct-purchase plan with a minimum initial investment of $250, though the firm will waive the minimum if an investor agrees to automatic monthly investment via electronic debit of at least $50 for five consecutive months. After the initial investment, subsequent investments require a minimum of $50.

Banking stocks have been sluggish since their big rally at the end of last year. Nevertheless, the Fed may raise rates one more time this year, which should be a plus for the group. Also, the Forecasts remains mostly bullish on the U.S. economy, which should translate into better loan demand. J.P. Morgan and Zions Bancorp are rated Buy and Long-Term Buy. Comerica is rated Long-Term Buy. 

Media stocks represent another attractive hunting ground for DRIPs. CBS ($62; CBS) and Comcast ($41; CMCSa) represent quality investments in this space. CBS offers a direct-purchase plan for initial purchases. Minimum initial investment is $250, with subsequent optional investments requiring a minimum of $50. Comcast has a traditional DRIP that requires share ownership before joining. Once in the plan, minimum optional investment is also $50. CBS and Comcast are coming off solid June quarters in which both companies beat consensus earnings and revenue estimates. CBS is a Buy and a Long-Term Buy. Comcast is a Focus Buy and Long-Term Buy.


Current Hotline

Stock Spotlight

Individual Stock Reports

ISRs make stock research easy!

Perhaps the most valuable two page reports available anywhere.

All the data you would normally have to plow through years of 10-K filings, earnings reports, and reams of market data to assemble — yours all in one concise report.

ISRs contain our proprietary Quadrix scores — find out how we rate all the stocks in the S&P 500.

Visit us at individualstockreports.com