DRIPs---Water Torture For the Wise
by MF Joule

If you're looking for a way to torture the Wise while lining your pockets with cash, try Dividend Re-Investment Plans, or "DRIPs." DRIPs are offered by many companies as a way to allow you to purchase shares (even fractional shares) on a regular schedule, directly from the company itself. They keep track of all the details, and you pay no commission. Most Foolish!

The Wise hate DRIPs because they let you bypass Wall Street almost completely, keeping more money for yourself. So how do you start DRIPPING into your portfolio? Easy.

First, most company DRIPs require you to own at least one share to participate. Yes, you have to buy this share through a brokerage, but look at it as a chance to visit your favorite broker and say your goodbyes. Hand over your last commission, ask for the certificate to be mailed to you, then thumb your nose as you skip out of the office. That is the last time you're going to see them.

Wait for your certificate to be mailed to you. Feel the crispness of the paper. Look at all the zeroes to the left of your one share. Now you have to get in touch with the company. That's easy, too. Write them, phone them, or fax them. If you need the numbers or address, check in the company's Fool Folder. If they don't have one, you can use First Call or our own Foolish Cold Call service. Ask for the DRIP prospectus.

When it comes in the mail, read it over, fill out the short form and return it. Every DRIP is a little different, but each follows a general pattern. You can have your dividends wholly or partly reinvested. Your dividend on that single share you own won't buy another whole share, so you'll get a statement showing your purchase of a fractional share, which the company holds for you. If you mail them the certificate for your first share, most companies will hold that, too. Best of all, you can begin to purchase all your new shares directly without a dime of commission. Nada. Zilch. Some companies let you invest four times a year, some are monthly, and McDonalds even lets you buy their McStock twice a McMonth.

DRIPs allow long-term investors to buy stock conveniently, and they're also great for low-budget investors. General Electric, for example, will accept optional deposits of as little as $10. Hold off on that Alvin & the Chipmunks CD. Buy yourself some stock instead. Most DRIPs even send you postage-paid envelopes, so you don't have to taste the postal glue flavor of the month. Some companies have automatic electronic transfer options, so you can buy your monthly stock while cruising the Caribbean. A few companies even reinvest your dividends at a discount to the market. For example, your $100 dividend could buy 1.05 shares of stock priced at $100/share. You just beat the Wise by 5 percent on that purchase.

Dividend Re-Investment Plans have many benefits for long-term investors. The only people that lose out are the Wise. Why not check out your favorite companies to see if they offer the option? Just don't tell your broker who told you about DRIPs.