Direct Stock Purchase

• Investors can purchase stock directly from some companies through a program called a direct stock plan, or DSP. Some companies charge investors a service fee to use this plan, but stock purchases and sales are usually made without brokerage fees or commissions. Requirements for participation in DSP plans vary from company to company. Some companies only allow employees to participate in their DSPs, while others require the investor to already own at least one share of company stock. Some companies allow any investor to participate.
  
  

Characteristics of a DSP

• DSPs typically make purchases and sales of company stock at specific, pre-announced times. These times are usually spaced at specific intervals, such as weekly or monthly. The investor does not have the ability to specify a time or price for the purchase or sale. The DSP will pool all of the funds from all investors to make a single purchase, then divide the shares among the investors on a pro rata basis. Shares are typically held by the DSP, but are registered in the investor's name.
  
  

Benefits of a DSP

• DSPs typically allow small amounts to be invested. In some cases the amount required is less that the price of a single share of company stock. The investor may make regular deposits into her account and the DSP will invest those funds in company stock during the regular purchase cycle. Since commissions and brokerage fees are reduced or eliminated, more of the investor's money goes toward the stock purchase. The DSP maintains possession of the stock certificates, which eliminates the need for the investor to find a place for safekeeping. The investor typically has the ability to designate whether any dividends paid by the stock are distributed or reinvested into additional stock.
  
  

Dividend Reinvestment Plans

• Dividend reinvestment plans, sometimes referred to as DRIPS, provide stock investors a benefit that is similar to compound interest on a savings account. Some companies, brokerage firms and mutual funds allow investors to automatically reinvest their dividends back into additional shares of the stock or mutual fund. Some companies may charge a fee for this service, while others provide the DRIP service free of charges, brokerage fees or commissions. Some companies may offer a discount from the prevailing stock price for DRIP purchases. Each company that offers DRIP programs has its own specific requirements and rules. Investors can typically find out those rules by contacting the company's investor relations department.