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| Dividend
Reinvestment Plans (DRIPs) |
Many publicly traded U.S. corporations offer Dividend
Reinvestment Plans (DRIPs) as a way for their shareholders to acquire additional
shares at a very low cost. DRIP plans enable investors to automatically take any
dividends paid by a particular firm and invest those funds back into the
company's stock, often at a discounted price. This discount can range from one
to ten percent of the stock's current market value. In addition, most DRIP
programs charge either very low transaction fees, or in some cases no fees at
all.
There are three types of Dividend Reinvestment Plans; Plans
administered by the companies themselves, plans operated by a transfer agent,
and those managed by brokerage firms. Here's a brief look at each of these three
alternatives:
- Company managed DRIPs are administered from a firm's
corporate headquarters. They often allow investors to initiate DRIPs without
having previously owned shares in the company.
- Transfer agent operated DRIPs, which involve
companies like EquiServe and Chase Mellon, often provide services at a lower
cost than company run programs.
- Brokerage firm administered DRIPs generally allow
shareholders to reinvest dividends at no cost, even if the company in
question does not have a formal Dividend Reinvestment Plan in place.
However, these brokerage-run plans do not allow cash purchases and the DRIP
plan applies to dividends only.
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