DRIP Investing, Step by Step

Establishing the DRIP Account

Now that you are the owner of the required number of shares (whether one or more) of a company and have a stock certificate in hand, make sure to keep the certificate in a safe place. A bank safety deposit box is best; a fireproof safe in your home may also work well. The danger is not so much that your certificates could be stolen (since it's relatively hard to transfer shares) but there are costs and hassles involved in replacing lost or stolen certificates.

Now you're ready to establish a DRIP account with the company.

Some enrollment services, like the NAIC's Low Cost Plan, actually transfer the single share into a new account with the participating DRIP company. In other cases, such as purchasing a single share through First Share, the investor may receive an actual stock certificate and then must enroll directly with the company.

In any case, before an investor purchases stock in a company, it would be prudent to call or write the company and request a copy of the DRIP plan prospectus and enrollment form. The prospectus will outline the schedule for optional cash purchases and reinvestment of dividends, fees or commissions involved with buying or selling shares, and other pertinent information. You can usually access the DRIP enrollment form and prospectus on a company's web site, or by calling the company's Investor Relations office or Transfer Agent and requesting that a copy be sent by mail.

A careful examination of the prospectus is especially important as more and more DRIP companies are levying commissions on OCPs and reinvestments. Many DRIP directories also provide details about the specific procedures a particular company follows in its DRIP plan, but programs change often and it is wise to acquire the most current information from the company directly.

The DRIP enrollment form itself will likely be very straighforward, asking for the name(s) of the account holder, Social Security or Taxpayer Identification Number, contact information, date, and signature. It may also include options for choosing to participate in the DRIP with full dividend reinvestment, partial dividend reinvestment, or optional cash purchases only.

DRIPs that offer direct debit purchases (where money will be automatically transferred from your bank account on a regular basis to invest in additional shares of stock) will provide a separate form to establish this feature. You'll need to provide your banking information and the amount that you'd like to invest regularly on this form. These automatic debit plans often work well since they are an easy way to invest on a regular basis. You'll never forget to make your monthly investment in the plan, and you'll take advantage of the benefits of dollar cost averaging which can work to reduce the overall cost per share of your DRIP stock.

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