DRIP: A Great Investing Method for the VERY Beginner to Start in the Stock Market

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The best way to learn the stock market and to start buying stocks is a DIY approach called a DRIP. This method has a simple design you can follow and it’s very budget friendly. It also provides passive dividend re-investing.

A DRIP It’s not an app, is not an online broker or a traditional broker. It’s a way to take the plunge into investing that offers simplicity, investors engagement and long term results. You can micro invest using a DRIP.

What is A DRIP?

A DRIP is a Dividend Reinvestment Plan. The plan allows you to buy an individual share of a company and to reinvest the dividends into buying more shares. Your DRIP account grows slowly, but steadily.

The obvious advantage of having a DRIP is that you can participate in the stock market as a small investor, without having to put up a lot of money. The not so obvious effect of having a DRIP is learning how to invest from the ground up.

When you buy stocks with a DRIP you have to do the research, make the decision on which stock to get and do the follow up. All of these actions build your investing skills, little by little.

The main disadvantage of a DRIP is that not all public companies participate on the plans. Although the list of companies has been growing, it’s still a limited number of them taking part of these plans. However, you can still find a diversified group of DRIP participating stocks.

Additional DRIP benefits. Automate your investments, provide dollar cost averaging (this lower your costs), avoid commissions, reinvest your dividends.

Why use a DRIP?

There are many other ways to invest in the stock market, so why use a DRIP? There are three main reasons why a DIY investor may want to participate in a DRIP.

To invest small amounts of money and Reinvest the dividends.

To buy dividend stocks

To avoid commissions

Who is DRIP not good for?

Participating in a DRIP is for the long term investor, not for individuals with short time frames. This is a method designed to grow a portfolio of companies for the long term.

DRIPs use a schedule to buy stocks, sometimes your orders may be completed near the high price of the stock. This is one reason why you should approach DRIPs as long term plays, as you can average the cost down.

How to participate on a DRIP

1.Find the companies that are part of a Direct Reinvest Program. Not all publicly traded companies participate on DRIPs. But, many Blue Chip US companies participate in these plans.

Look for a list of stocks you can purchase directly. The website First Share maintains a list of companies participating in DRIPs.

2.Decide on which stocks you want to invest. Use investing fundamentals. Find great companies that have been paying dividends consistently. Also, companies that have been growing their revenues.

3.Register in a DRIP via a Transfer Agent or directly in the company you want to invest in. Some of the transfer agents include; Computershare, Wells Fargo and AST Financial. To invest directly with the company, contact the Investor Relations Department and request information about their DRIPs.

4.Watch the fees. Most DRIPS have no fees or low fees.

5.Maintain a balance. If you decide on building a portfolio, more than just a few companies, make sure to diversify your industries to spread the risks.

6. Enroll in the automatic investments option. This option allows you to invest every month a set amount into the DRIP.

7.Get ready for taxes. You will get tax forms before filing deadlines.

8.Follow up on your stocks. You don’t have to become obsessed about your holdings. However, following up on your stocks by reading the news and the happenings around the companies will help you become a better investor.

The website Dividends.com is a very good resource to read up about individual stocks, specially dividends stocks participating in DRIPs.

Here is a list of stocks participants in DRIPs, this is only a sample of ten companies. You can contact the companies for information about their DRIPs.

These 10 companies offer no fee DRIPs

These companies offer DRIP with no charge, or very small fee. Although Reinvestment plans can vary, most of these reinvest the dividends into buying more shares of the same stocks. These ten, have been consistent dividends payers.

3M Co (MMM )
AbbVie Inc. (ABBV )
Sherwin Williams (SHW )
Honeywell (HON )
ExxonMobil (XOM )
Aflac (AFL )
Johnson & Johnson (JNJ )
Abbott Labs (ABT )
Emmerson Electric (EMR)
Kellogg Co (K)

Related Content: Simple ways to invest in Index Funds

DRIPs are mainly for long term investors in dividend stocks. You can save on commissions and fees by using a DRIP. You won’t receive a quarterly cash payments for your dividends, instead you get whole or fractional shares of stocks. This is why is called Dividends Reinvestment Plan.

DRIPs are also good for the DIY investor. You get to pick your stocks and do the research and follow up. You can track price movements daily, weekly, monthly. DRIPs are a great way to learn stock investing because you have to be involved in every step of the process.

DRIPS are good vehicles for the investor looking for passive payments. Even though DRIPS don’t pay cash dividends, they do pay dividends in the form of shares. This is a way to obtain passive reinvestments in shares of stocks.

Disclaimer: The stocks mentioned in this post are not recommendations. Their names are being used for information and educational purposes only. Before investing, please do your own research.