Earning stocks dividends is a good thing for the long-term growth of your investment portfolio. Compounding those dividends makes the good thing even better. Paying broker commissions to buy shares or reinvest dividends is not such a good thing. Some research into dividend reinvestment plans will allow you to buy shares of dividend paying companies and avoid paying broker commissions.
Direct Stock Purchase Plans
Many companies have set up what are referred to as direct purchase plans or dividend reinvestment plans, which allow investors to purchase company shares and have any earned dividends reinvested into more shares. The companies which sponsor these types of plans tend to be those companies with histories of regular dividend payments -- the types of companies you want to own for the dividends. Direct purchases and dividend reinvestment plans both offer dividend reinvestment without charge. The difference is that a true dividend reinvestment plan requires you to first buy at least one share outside of the plan before you can enroll. In most cases, the terms direct purchase plan and dividend reinvestment plan are interchangeable.
Finding Direct Purchase Plans
You can find the direct purchase plan information of a particular stock on the Investor Relations page of the company's website. The Investor Relations pages will provide links to information about the company's plan and to the plan administrator which handles plan enrollment and reporting. You can also find lists of companies offering stock purchase plans on the websites of those companies which provide administration services. The major stock purchase plan administrators are Computershare, American Stock Transfer & Trust Company, Bank of New York Shareowner Services and Wells Fargo Shareowner Services.
Review the Costs and Fees
Each stock direct purchase or dividend reinvestment plan has its own fee schedule which has been set up by the sponsor company. A few plans are completely fee free. More common are plans which charge an initial enrollment fee and then you can invest without paying any additional fees. For some plans, there is a fee to buy shares of stock unless you set up an automatic direct investment plan out of your bank account. Check the fee schedule carefully of any company for which you are considering enrollment in the stock purchase plan. Other considerations are the minimum initial and periodic investment amounts.
Since a direct stock purchase plan allows you to buy shares of a single dividend-paying stock, you should make sure the plans you select are from companies in which you want to own the shares for the long term. The best candidates are large companies with long histories of steady dividend payments. You may choose to enroll in the dividend reinvestment plans of several companies to diversify your growth holdings.
Tim Plaehn has been writing financial, investment and trading articles and blogs since 2007. His work has appeared online at Seeking Alpha, Marketwatch.com and various other websites. Plaehn has a bachelor's degree in mathematics from the U.S. Air Force Academy.