DRIP Investing
DRIP Plans can be very effective ways to build portfolios of excellent dividend paying companies. They are attractive for the following reasons:
- Investors can purchase shares directly from the company rather than through a brokerage.
- As such, transactional fees are usually very low when compared with a brokerage.
- Automatic, regular investments are easily setup via an auto-debit method - automatically transferring money from your checking account to your DRIP plan to buy shares each month can be an excellent method for many investors.
- Automatic reinvestment of dividends helps build large positions over time.
- DRIP Plans are usually very professionally managed and all documentation is sent to you automatically for record keeping and tax purposes.
What stocks would I recommend for a DRIP Plan? I’d recommend reading the Dividend Strategy Overview for details on selecting dividend stocks. I would also add the caveat that the stock should really be attractive at current price levels. The growth rate needs to be pretty good to be acquiring shares each month regardless of share price (you can always halt auto-purchases for a time being if you think the price gets too high for a season).
DRIP Plan stocks are stocks that you have a very high degree of assurance that you are going to want to own these shares in a decade or more. There are some stocks that I recommend in the Dividend Portfolio that do not necessarily qualify for this.
Currently, the stocks that I do DRIP plans for are:
- McDonald’s (MCD) - Read more on why I like McDonald’s
- Wal-Mart (WMT) - Read more on why I like Wal-Mart
Note that I allocate about twice as much money in WMT each month as I do MCD. There are a couple reasons for this. First, I probably like WMT long-term slightly more than MCD. Second, MCD’s price has risen higher in recent months and years than WMT has, therefore, I prefer to accumulate more shares of WMT at current levels. Depending on the price action of both companies’ shares, I could adjust these levels at any time.
I do eventually want to initiate a DRIP for Raven Industries (RAVN) as I mention here, but am waiting for the stock to pull back some.
Depending on your own financial situation, one or more DRIPs may make a lot of sense for you. If you are young and do not have a 401(k) which is the most common form of “automatic investing,” I would absolutely recommend a DRIP plan at least to a certain degree. In most cases, you can invest as little as $50 a month. There’s no excuse to not do this for a quality company.
I encourage you to stretch your finances as far as possible to allocate as much money as possible into some DRIP plans at an early age as possible. The power of compounding returns increases exponentially the more time you give your investments to grow. DRIPs are an excellent way to accomplish this.
Links To Specific Company DRIP Plans: