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Investing Has Arrived
DRIPS
Most
drips are annoying. Some irritating individuals get this title.
Some older faucets have this characteristic. But one often
over looked drip is very attractive. This particular drip
can be very handy when you'd like to give a gift, whether
at the holidays, a birthday, graduation, or celebrating a
birth. This drip is the Dividend Re-Investment Programs
offered by over 900 companies. Now most short-term traders
don't buy stocks that pay dividends because these are typically
shares in companies that are beyond their high growth phase
and are producing earnings at a moderate to lackluster rate.
But for an individual's retirement planning or a gift, one
of these stocks with a DRIP program could be very appropriate.
The advantage of a stock that pays a dividend and has a
DRIP feature is that over a handful of years it can grow without
requiring any attention. This is why it's a good present
for a child that wants to go to college or someday buy a house.
You start the ball rolling by buying shares in the company,
and then you specify that all cash dividends are to be used
to buy additional shares rather than being sent out to the
shareholder.
The way a DRIP works is you can specify
that the dividend be reinvested in shares of the stock without
incurring a brokerage charge. You can also frequently buy
additional shares sporadically or on a regular basis without
a brokerage charge. Hundreds of companies have DRIP programs.
Unfortunately that is where the similarities end and the craziness
begins. There are features common to DRIP programs, but every
company's program seems to be different. Some require you
to already be a holder of a minimum number of shares before
you can take advantage of the program. Some companies will
let you buy your initial shares directly, whiles others won't.
Most companies will hold the shares in safe keeping at no
charge. Some companies offer a discount off the share price
when you reinvest your dividends, most don't. In most
DRIP programs you can make additional cash purchases of shares,
but this is usually subject to a minimum and maximum dollar
amount. Additional purchases are sometimes restricted to a
certain frequency, such as monthly or quarterly. You can even
specify automatic purchase of additional shares with the funds
coming out of a bank account or charged to a credit card.
Eastman Kodak has a DRIP program. You need to have 1 share
of stock before you can participate in the program, there
are no fees, no discounts, and you have to limit your purchases
to $100,000 per year. Boeing's program offers no discounts
but charges fees for everything. Clorox will accept additional
stock purchases as little as $10.
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