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As a lot of time and energy was devoted to building employee stock purchase
plans that would allow those who worked for a company to purchase stock (often
at a discount), reinvest their dividends, and purchase more stock at a later
time if they so desired, many companies decided to pass along this benefit
to the nominal owners of the companies as well -- the shareholders. Requiring
that people already own a share to participate ensured that anyone who used
the plan was either an employee of the company who had purchased or been
granted some shares upon being hired, or an investor who was already familiar
with the corporation.
These plans were originally designed with the intention of serving employees
as well as shareholders. This is why many of the plans still allow individuals
to purchase stock at a discount as well as receive other varied and assorted
benefits, ranging from the ability to purchase additional stock at little
or no fee to occasional free samples of company products.
As the century has gone on, many companies that do not even pay a substantial
or any dividend have begun DRIPs as a way to attract a stable base of
shareholders with a long-term orientation, or as a way to systematically
issue new shares into the market without ever having to file for a secondary
offering. Capital intensive businesses that have cannot retain much of their
income due to regulation, such as utilities and Real Estate Investment Trusts
(REITs), are especially big on the DRIP front.
In recent years, some companies that run DRIPs have changed their practices
in order to discourage shareholders who only purchase small amounts of stock,
though most companies still allow minimal monthly investments as low as $10,
with the average required minimum investment being around $25 to $50.
At the same time these companies have often allowed for direct investment
in the company without needing to own a share to begin with, as long as you
bought five or more shares from the outset, allowing them to call this an
improvement. However, given that enough in the way of fees were levied by
some of the chief culprits to dissuade shareholders from ever buying small
amounts of stocks, these plans served to lock out many investors who lacked
the financial resources to make $500 or $1000 purchases on a regular basis.
Hopefully as information technology advances to make administering the plans
cheaper, this will change. Companies must become more attuned to the idea
that a stable base of long-term owners encouraged not to trade due to the
time-delay and fees associated with closing a DRIP account helps keep the
share price stable and provides a real value to all of the owners of the
company, regardless of the expense of running the DRIP.